Indirect Method

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DEFINITION of 'Indirect Method'

A method for creating a statement of cash flows a company may use during any given reporting period. The indirect method uses accrual accounting information to present the cash flows from the operations section of the cash flow statement.

Under both the direct and indirect methods the remaining two sections of the cash flow statement, cash provided from investing and financing activities will be identical.

BREAKING DOWN 'Indirect Method'

The indirect method uses accounting information, instead of actual cash inflow and outflow data, the internal information is readily available and may be easier to implement. Since a company is most likely required to report its financial information to an outside party, regardless if the company is publicly held or not, the accrual accounting information will be readily available.

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RELATED FAQS
  1. What is the direct method of calculating cash flow from operating activities?

    The direct method of calculating cash flow from operating activities adds up all the cash receipts and cash payments of a ... Read Full Answer >>
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    The indirect method of calculating cash flow from operating activities calculates a company's cash flow from operations by ... Read Full Answer >>
  3. What types of categories appear on a cash flow statement?

    The cash flow statement reports a company's sources and uses of cash and is made up of three main categories: cash from operating ... Read Full Answer >>
  4. What is the difference between a cash flow statement and an income statement?

    The cash flow statement, or statement of cash flows, measures the sources of a company's cash and its uses of cash over a ... Read Full Answer >>
  5. What are some examples of general and administrative expenses?

    In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>
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