Indirect Method for Operating Activities
Reconciling Net Income to Operating Cash Flow
The indirect method begins with net income and adjusts for noncash items and changes in working capital to arrive at net cash provided by operating activities. It is the most commonly used method under U.S. GAAP.
Tip
Noncash expenses increase operating cash flow because they reduce net income without using cash.
Summary
The indirect method converts accrual-based net income into cash generated from operating activities.