Mind The Rules In Cash Flow Statement Preparation


For preparing a cash flow statement a direct or indirect method may be used according to the convenience of the accountant or on the basis of the entries to be included.

Direct method

The direct method works by and follows the category of cash flows and therefore there is lesser room for confusion. Still, there are sections which run concurrently among multiple categories, such as the income from the real estate sector, taxes, stock market etc. It is advisable to include the income from investments like stocks and shares through purchase and sale under the investing activity, whereas the income in the form of dividends for the shares is to be added under the operating activity. The inward and outward cash flows are entered into separate columns under individual headings.


Indirect method

The method is more complex is aided with more rules for preparing the cash flow statement. Operating activities tend to change usually in a step to improve the working of the business and these changes reflect in the financial statements if they are prepared over a longer time interval. Preparation becomes less cumbersome if the time period for inclusion of details are kept as low as it is, such as within two years.

The wider time interval can influence the addition of assets like real estate and stock market assets and the reduction in their prices should be because of the diminishing valuation and not because of cash flows. If such properties bring in income through sale or purchase, then they have to be taken as non-operating activities and the statement also changes.

The indirect method of cash flow statement preparation is a mixed play of additions and subtractions on the net income. Even if you are miner using Ethereum Code, there are times when the coin values make you do calculations and the software eventually helps you out, proving again the doubts asking is it a scam are baseless.

The following changes are added to the net income:

A decrease in current assets that are not linked with cash

Any increase in the value of current liabilities

Currency expenditure that did not result in any cash flow outwards

Non operating losses

The down-listed are subtracted from the net income:

An increase in current assets that are not linked with cash

A decrease in the value of current liabilities

Revenues which are not associated with cash inflows

Non operating gains


Currency notes received dividends paid off to the shareholders, receipt of payment of financial funds, funds received from donors etc should be taken as cash inflows. Dividends received from other sources, the amount invested in purchasing stock or bonds, debt payment amounts, recurring expenses etc are to be taken as cash outflows.