Page 51 - FINAL CFA I SLIDES JUNE 2019 DAY 7

Session Unit 7:

26. Understanding Cash Flow Statements

Indirect Method, p.111

Step 1

Begin with net income

Step 2:
Subtract gains or add losses that resulted from financing or investing cash flows (such as
tanties
gains from sale of land).

Step 3:

Add back all noncash charges to income (such as depreciation and amortization) and

subtract all noncash components of revenue.

Step 4:
Add or subtract changes to balance sheet operating accounts as follows:
• Increases in the operating asset accounts (uses of cash) are subtracted, while decreases

(sources of cash) are added.
• Increases in the operating liability accounts (sources of cash) are added, while decreases (uses

of cash) are subtracted.