Cash Flow Statement (indirect method)
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Updated 29 Sep 2026
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AI summary
Why profit and cash differ, and how the cash flow statement explains it.
3 sections
Three sections
| Activity | Includes |
|---|---|
| Operating | Cash from the main business: profit adjusted for non-cash items and working capital changes |
| Investing | Buying or selling fixed assets and investments; interest and dividends received |
| Financing | Loans taken or repaid, capital introduced, drawings, dividends and interest paid |
Operating cash flow — indirect method
Net profit before tax 2,30,000
+ Depreciation (non-cash) 60,000
+ Interest expense (shown under financing) 40,000
Operating profit before working capital 3,30,000
− Increase in debtors (1,20,000)
− Increase in stock (80,000)
+ Increase in creditors 50,000
Cash generated from operations 1,80,000
− Income tax paid (55,000)
Net cash from operating activities 1,25,000Why profit ≠ cash
Profit can be high while cash is low if debtors or stock are rising, or if you bought assets or repaid loans. The cash flow statement shows exactly where the money went.
Companies (other than small and one-person companies) must prepare a cash flow statement under AS 3 / Ind AS 7.
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