What method is followed for computing a cash flow statement?

In Zoho Books, the Cash Flow statement is computed using Indirect method. This method essentially adjusts the non cash transactions from the net income figure from the income statement (Profit and loss report: Accrual basis).

A few examples are as follows for non-cash transactions:

• Non-cash Expenses: Adjust the non-cash expenses such as depreciation and amortization expenses. When recording a depreciation expense the actual cash is not going out of business, which will be added back to the net income.

• Changes in Working Capital: Adjust for changes in current assets and liabilities. For example, if accounts receivable increased by $10,000, we deduct that amount from net income because it represents sales that have not yet been collected in cash. Conversely, if accounts payable decreased by $5,000, we add that amount because it represents a decrease in expenses that have not yet been paid.