If a direct-format statement is not available, cash flows from operating activities reported under the indirect method can be converted to the direct method. Accuracy of conversion depends on adjustments using data available in published financial reports.
Method to Convert Cash Flow from Indirect to Direct
The three-step conversion process:
- income statement and balance sheet information, begin by disaggregating net income into total revenues and total expenses
- remove any non-operating and non-cash items
- convert accrual amount of revenues and expenses to cash flow amounts of receipts and payments by adjecting for changes in working capital account
