Indirect method
Financial Accounting glossary · Statement of Cash Flows
Definition
Presentation of operating cash flows starting from net income, adjusting for non-cash items (D&A) and changes in working capital.
Indirect method in plain English
A cash flow statement answers one question: where did actual cash come and go? The 'indirect method' is one way to build the operating part of it — instead of listing every cash transaction, you start with net income (profit) and then un-do the parts of profit that didn't involve real cash. For example, you add back depreciation (a paper expense where no cash left) and adjust for changes in things like unpaid customer bills or inventory. It's like reconciling your bank balance by starting with 'what I thought I earned' and then correcting for money that's owed to me or that I owe but haven't actually moved yet.
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