Using the indirect method, Gilliam will only have to adjust for the change in Accounts Receivable, resulting in a $47,000 decrease in cash flows from operating activities.
The indirect method is a financial reporting method in which the statement of cash flows begins with net income before being adjusted for cash operating activities before arriving at an ending cash balance.
While both methods calculate your net cash flow from operating activities, the main difference is the starting point and types of calculations used. Your net income is the starting point for the indirect method. The direct method, on the other hand, starts with the cash amounts received and paid out by your company. Cash flow is calculated using the indirect method by taking the value of net income (i.e. net profit) at the end of the reporting period.
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