What you will learn to do: Understand how a statement of cash flows is prepared using the indirect method
Cash flows from operating activities show the net amount of cash received or disbursed during a given period for items that normally appear on the income statement. You can calculate these cash flows using either the direct or indirect method. The direct method deducts from cash sales only those operating expenses that consumed cash. This method converts each item on the income statement directly to a cash basis. Alternatively, the indirect method starts with accrual basis net income and indirectly adjusts net income for items that affected reported net income but did not involve cash.
Cash flows from investing and financing are prepared the same way under the direct and indirect methods for the statement of cash flows.
Here is our statement of cash flows for Rumble Corp. prepared using the indirect method:
| Description | Amount | Total |
|---|---|---|
| In millions | ||
| Subcategory, Cash flows from operating activities | ||
| Net income | $ 2,610 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
| Depreciation and amortization | 125 | |
| Decrease in Accounts Receivable | 15 | |
| Gain on sale of equipment | (90) | |
| Increase in Accounts Payable | 32 | |
| Increase in income taxes payable | 80 | |
| Increase in other liabilities | 18 | |
| Total adjustments | 180 | |
| Net cash from operating activities | Single Line |
Single Line $2,790 |
| Subcategory, Cash flows from investing activities | ||
| Purchase of property, plant, and equipment | (580) | |
| Proceeds from sale of equipment | 150 | |
| Net cash used in investing activities | Single Line |
Single Line (430) |
| Proceeds from issuance of common stock | 1,000 | |
| Proceeds from issuance of long-term debt | 500 | |
| Dividends paid | (460) | |
| Net cash used in financing activities | Single Line |
Single Line 1,040 |
| Net increase in cash and cash equivalents | 3,400 | |
| Cash and cash equivalents at beginning of period | 1,640 | |
| Cash and cash equivalents at end of period |
Single Line $5,040 Double Line |
|
| Supplemental information: | ||
| Cash paid for interest | $ 310 | |
| Cash paid for income taxes | $ 1,700 | |
Only the top section entitled “Cash flows from operating activities” is different.
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