Income
Statement
Accounts
cash Flows from
Operating Activities
Adjustments
{ + Decrease_in accounts receivable or
Sales
revenue
- ·Increase m accounts receivable
+ Increase in deferred revenue or
- Decrease in deferred revenue
=
}
{ + Increase in unearned revenues or
- Decrease in unearned revenues
- Gains on disposals of assets and liabilities
- Investment income (equity method)
Other
revenues
Collections from
customers
}=
+ Decrease in interest receivable or
- Increase in interest receivable
+ Amortization of premium on investment in
bonds or
- Amortization of discount on investment in
bonds
Interest
revenue
and
dividend
revenue
=
{ + Increase in inventmy or
Cost of
goods
sold
- Decrease in inventory
+ Decrease in accounts payable or ·
- Increase in accounts payable
Selling and
administrativ
e
expenses
}=
- Depreciation, depletion and amortization
expense
+ Decrease in accrued expenses or
- Increase in accrued expenses
+ Increase in prepaid expenses or
- Decrease in prepaid expenses
+ Decrease in interest payable or
- Increase in interest payable
+ Amortization of premium on bonds payable
or
- . Amortization of discount on bonds payable
Interest
expense
Other
expenses
Income tax
expense
Net Operating
Cash Flows
=
=
Interest and
dividends
collected
Other operating
receipts
Payments to
suppliers
Payments of
operating
expenses
Payments of
interest
{ - Losses on disposals of assets and liabilities } _
- Investment loss ( equity method)
Other operating
payments
+ Decrease in income taxes payable or
- Increase in Income taxes payable
+ Decrease in deferred income taxes payable
or
- Increase in deferred income taxes payable
Payments of
income taxes
=
cash Inflows
From Operating
Activities
Cash Outflows
For Operating
Activities
Figure 13-3. Adjustment~ to Convert Income Statement Amounts to
Operating Cash Flows (DiRECT METHOD)
[
Net Income after Taxes
]
Plus
Decreases in current assets (except cash, marketable securities and nontrade accounts)
Increases in current liabilities (except financing or non-operating accounts,
e.g., bank loan, current maturities of long-term debt)
·
Depreciation, depletion, and amortization expense
Amortization of discount on bonds payable
Amortization of premium on investment in bonds
Increase in deferred income taxes
loss (net) on disposal of assets or liabilities
Subsidiary loss under the equity method
Interest expense *
Income taxes*
Minus
Increases in current assets ( except cash, marketable securitiesr and nontrade accounts)
Decreases in current liabilities (except financing or non-operating accounts,
e.g., bank loan, current maturities of long-term debt)
Amortization of premium on bonds payable
Amortization of discount on investment in bonds
Decrease in deferred income taxes
Gain (net) on disposal of assets or liabilities
Subsidiary gain under the equity method
Equals
[
Net cash Flow From Operations
]
Interest paid
Income taxes paid
( Net cash from Operating Activities )
* Shown separately
Figure 13-4. ~djustments to Convert Net Income to Net Cash Flow from
Operating Activities (INDIRECT METHOD)