Preparing a Cash Flow Statement: The Indirect Method

This video tutorial from Let'sTute Accountancy covers the indirect method of preparing a cash flow statement. It explains the adjustments needed for non-cash and non-operating items, and how changes in working capital affect cash flows. The tutorial provides examples to illustrate these concepts and concludes with a practical example of preparing a cash flow statement using the indirect method.

What is the primary focus of the indirect method in preparing a cash flow statement?

• Directly listing all cash transactions

• Starting with net profit or loss before tax

• Focusing on cash sales and purchases

• Ignoring non-cash items

In the indirect method, which of the following is adjusted to derive cash flows from operating activities?

• Net cash balance

• Net profit or loss

• Total sales

• Total expenses

How does an increase in current assets affect cash flow?

• Doubles the cash flow

• Has no effect on cash flow

• Decreases cash flow

• Increases cash flow

What happens to cash flow when there is an increase in current liabilities?

• Cash flow decreases

• Cash flow increases

• Cash flow becomes negative

• Cash flow remains unchanged

Which of the following is added back to net profit in the indirect method?

• Cash sales

• Cash purchases

• Interest income

• Depreciation

What is the result of deducting non-operating income from the P&L balance in the indirect method?

• Increased cash inflow

• Decreased cash inflow

• Increased cash outflow

• Decreased cash outflow

What is the first step in preparing a cash flow statement using the indirect method?

• Calculating net cash flow from investing activities

• Recording cash inflow transactions

• Adjusting for working capital changes

• Taking the figure of net profit before tax

In the example provided, what is the net cash flow from operating activities?

• $150,000

• $261,000

• $277,000

• $299,000

What is the net cash flow from investing activities in the example?

• Positive $100,000

• Negative $50,000

• Negative $100,000

• Positive $50,000

What is the final net increase in cash flow in the example provided?

• $40,000

• $261,000

• $50,000

• $251,000