How to use the indirect cash flow statement builder
- Enter net income and the year’s non-cash items, then the changes in operating assets and liabilities.
- Enter investing and financing amounts. Cash paid out, such as equipment purchases, loan repayments and dividends, goes in as a positive number.
- For a reconciliation, enter cash at the start and at the end in the advanced section. Fill in both or leave both empty.
- Read the statement, the three section totals and the net change in cash, then copy it or download the CSV.
Formula
operating = net income + depreciation + other non-cash items - increase in assets + increase in liabilities
investing = - equipment purchases + proceeds from asset sales
financing = borrowing + stock issued - loan repayments - dividends
net change in cash = operating + investing + financing; ending cash = starting cash + net change
An increase in a receivable or inventory means cash was spent, so it is subtracted. An increase in a payable or accrued liability means cash was kept, so it is added.
A year with a net change of 77,000
Net income of $120,000 plus depreciation of $30,000, minus a $15,000 increase in receivables and an $8,000 increase in inventory, plus a $6,000 increase in payables and a $4,000 increase in accrued liabilities, gives operating cash flow of $137,000.
Equipment purchases of $60,000 less asset sale proceeds of $5,000 give investing of ($55,000). Borrowing of $40,000 less repayments of $25,000 and dividends of $20,000 gives financing of ($5,000). The net change is $77,000, so starting cash of $50,000 should end at $127,000, and the page reports that it reconciles.
Why the indirect method
The indirect method starts from net income, which includes items that did not move cash, and adjusts it. Depreciation reduced income without a cash payment, so it is added back. Changes in receivables, inventory and payables show how the timing of cash differs from the timing of sales and costs.
The statement does not look at the balance sheet itself. If starting and ending cash both come from the books, a difference means something was missed, such as a change in another asset or a sign entered the wrong way.
Classification choices
This layout puts interest and taxes inside net income and dividends paid in financing. Accounting frameworks allow other placements, for example interest paid in financing under some rules. Follow the rules that apply to your reports.
Add the depreciation figure from a Fixed Asset Depreciation Register, project the next year with the Cash Flow Forecast Calculator, or check the working capital behind the changes with the Working Capital Calculator.
Assumptions and limits
- Increases are entered as positive numbers and decreases as negative numbers for assets and liabilities.
- Cash paid out is entered as a positive amount in the investing and financing sections.
- Interest, taxes and gains or losses on sales are assumed to be handled inside net income or the non-cash line.
- The reconciliation only checks that the statement agrees with the cash balances you entered.
- Nothing typed here leaves your browser.
Frequently asked questions
Why is an increase in receivables subtracted?
It means sales were recorded as income but the cash has not arrived yet. Net income counts the sale, so the uncollected part must come out to show actual cash.
What goes in other non-cash expenses?
Items that reduced income without a payment, such as amortization, impairment or stock compensation. Gains that are not cash go in as negative numbers.
What if the statement does not reconcile?
The page shows the difference. Look for a missing line, a sign entered the wrong way, or a change in an asset or liability that you left out, such as a change in prepaid expenses.
Is this the same as the direct method?
No. The direct method lists cash received from customers and cash paid to suppliers. Both methods give the same net change in cash, but the indirect method starts from net income.