STATEMENTOF

OFCASH
CASHFLOW
FLOW- -ADDITIONAL
ADDITIONAL
STATEMENT
(DIRECTMETHOD)
METHOD)
(DIRECT
11/28/15

Mian Muhammad Atif (PhD)

Assistant Professor
PhD Critical Finance Studies (Massey University, New Zealand)
Master of Business Administration - Finance (University of Peshawar, Pakistan)
PostGraduate Diploma in Management (Massey University, New Zealand)
Bachelor in Commerce (University of Peshawar, Pakistan)

Mian Muhammad Atif (PhD)

Department of Management Sciences

CASH FLOW OPERATING ACTIVITIES

Mian Muhammad Atif (PhD)

An efficient way to apply the direct method is to analyze the items

reported in the income statement in the order in which they are listed.

Under the direct method, companies compute net

cash provided by operating activities by adjusting
each item in the income statement from the
accrual basis to the cash basis.
Mian Muhammad Atif (PhD)

FIRST THING FIRST

Mian Muhammad Atif (PhD)

CONVERT INCOME STATEMENT FROM

ACCRUAL BASIS TO CASH BASIS

Mian Muhammad Atif (PhD)

CASH FLOW FROM OPERATING

ACTIVITIES DIRECT METHOD

Mian Muhammad Atif (PhD)

STEP 2: INVESTING AND FINANCING ACTIVITIES

ANALYZE CHANGES IN NONCURRENT ASSET AND LIABILITY
ACCOUNTS AND RECORD AS INVESTING AND FINANCING ACTIVITIES,
OR DISCLOSE AS NONCASH TRANSACTIONS.

Mian Muhammad Atif (PhD)

STATEMENT OF CASH FLOWS - COMPLETE

Mian Muhammad Atif (PhD)

STATEMENTOF
OFCASH
CASHFLOWS
FLOWS- -ADDITIONAL
ADDITIONAL
STATEMENT
(INDIRECTMETHOD)
METHOD)
(INDIRECT
11/28/15

Mian Muhammad Atif (PhD)

Assistant Professor

Department of Management Sciences

PhD Critical Finance Studies (Massey University, New Zealand)

Master of Business Administration - Finance (University of Peshawar, Pakistan)
PostGraduate Diploma in Management (Massey University, New Zealand)
Bachelor in Commerce (University of Peshawar, Pakistan)

Mian Muhammad Atif (PhD)

the statement of cash flows prepared by the indirect method starts with
net income. It then adds or deducts items to arrive at net cash provided
by operating activities.

The indirect method (or reconciliation method)

starts with net income and converts it to net cash
provided by operating activities.
Mian Muhammad Atif (PhD)

10

FIRST THING FIRST

Mian Muhammad Atif (PhD)

11

INDIRECT METHOD

Mian Muhammad Atif (PhD)

12

STEP 1 ADD BACK NON CASH

CHARGES
Depreciation Expense

STEP 2 TAKE OUT ANY LOSSES/GAINS ON DISPOSAL OF FIXED

ASSETS

Mian Muhammad Atif (PhD)

13

STEP 3 - CHANGES TO NONCASH CURRENT

ASSET AND CURRENT LIABILITY ACCOUNTS

Mian Muhammad Atif (PhD)

14

STEP 3 - CHANGES TO NONCASH CURRENT

ASSET AND CURRENT LIABILITY ACCOUNTS

Mian Muhammad Atif (PhD)

15

STEP 4 analyze changes in noncurrent asset and liability accounts and record as
investing and financing activities, or disclose as noncash transactions

Mian Muhammad Atif (PhD)

16

 Mian Muhammad Atif (PhD)

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