Preparing the operating section of statement of cash flows by the indirect method starts with net income from the income statement and adjusts for items that affect cash flows differently than they affect net income There are two approaches utilized to prepare the statement of cash flow: the indirect method and the direct method

The statement of cash flows presents the sources and uses of cash The statement of cash flows is used to predict future cash flows and to assess the quality of an entity’s earnings

statement of cash flows — financial statement listing the cash inflows and cash outflows for the business for a period of time. cash flow — cash receipts and cash disbursements as a result of business activity. direct method — approach used to determine net cash flows from operating activities, whereby accrual basis revenue and expenses are converted to cash basis collections and payments. indirect method — approach used to determine net cash flows from operating activities, starting with net income and adjusting for items that impact new income but do not require outlay of cash.