Hopefully this is making more sense! If you are working on a cash flow statement, you can keep the little chart with you! The account balance decreased so we need to subtract $3000 from our cash for the month because we paid down our accounts payable balance? 1/31/20XX Accounts Payable Balance $5000.1/1/20XX Accounts Payable Balance $8000.The account balance decreased, so we need to add $1000 to our cash for the month because we received that much more in cash from our customers. 1/31/20XX Accounts Receivable Balance $4000.1/1/20XX Accounts Receivable Balance $5000.This can be a really confusing concept, so let’s look at some examples. There are related accounts on the balance sheet, that when changes happen, we need to know how they affect the statement of cash flows:Īccounts Receivable (money from customers) Pay your bills! (utilities, rent, insurance) Remember the operating activities that affect cash flow: The indirect method starts with your net income and adds or subtracts the items based on changes in their balances. Remember from our previous conversations, companies only use one method and typically they use the direct method! We just want to talk about the indirect method so you understand the concept! Calculate cash flows from operating activities by the direct method.Calculate cash flows from operating activities by the indirect method.
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