Fortune Corporations comparative balance sheet for current assets and liabilities was as follows:

Adjust Year 2 net income of $45,545 for changes in operating assets and liabilities to arrive at cash flows from operating activities using the indirect method.

The statement of cash flow reconciles the changes in cash balances over two periods. The statement of cash flow can be prepared on the direct or indirect methods.

The first section of the statement of cash flow is the operating section. The operations of the statement of cash flow combine the activities of the income statement with the working capital assets of the balance sheet. The indirect method of the statement of cash flow begins with net profit, adds depreciation and amortization and accounts for the net change in the working capital account. Note that increases in assets are uses of cash, decreases in assets are sources of cash, increases in liabilities are sources of cash, and decreases in assets are uses of cash.

Statement of Cash Flow – Operating Activities Indirect Method

(Increase) / Decrease in trade and other receivables

Increase / (Decrease) in Income Taxes Payable

Net cash generated (used) from operating activities

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