Indirect Method

Indirect Method

The indirect method is used for presentation of operating activities section in the statement of cash flows. Under this method, the net income is adjusted for non-cash charges (e.g. depreciation, amortisation, impairment/bad debts), non-operating activities (e.g. gain/loss on sale of non-current assets) and changes in working capital to arrive at cash flows from operating activities. Interest paid may be shown as part of operating activities. This method is popular as it is easier to apply starting from net income and making adjustments for items in the income statement and balance sheet.

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