What is the Cash Flow Statement Indirect Method?
A cash flow statement can be prepared in two ways, One is the direct method and the other one is indirect. The indirect method of preparing cash flow is a system to convert the line item of the balance sheet from the accrual basis of accounting to the cash basis.
There are three sections of the Cash flow statement under the indirect method:
- Cash flows from operating activities
- Cash flows from investing activities
- Cash flows from financing activities
Though the indirect method of preparing cash flow doesn’t show a clear view of an entity, it is acceptable by the standard-setting bodies. The elements that are needed to prepare this cash flow can be easily found in the chart of accounts.