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Operating Activities: Indirect Method definitions

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  • Indirect Method
    A process starting with net income and adjusting for non-cash items and working capital changes to determine operating cash flows.
  • Net Income
    The bottom-line figure from the income statement, serving as the starting point for calculating operating cash flows.
  • Operating Cash Flows
    Cash generated or used by a company's core business activities, excluding investing and financing transactions.
  • Non-cash Expenses
    Items like depreciation or amortization that reduce net income but do not involve actual cash outflows.
  • Depreciation Expense
    An allocation of the cost of tangible assets over their useful lives, representing wear and tear without cash movement.
  • Amortization
    A systematic reduction of intangible asset value over time, similar to depreciation but for non-physical assets.
  • Gain
    An increase in net income from selling assets above book value, not representing a cash inflow in operating activities.
  • Loss
    A decrease in net income from selling assets below book value, not representing a cash outflow in operating activities.
  • Current Asset
    Resources expected to be converted to cash within a year, such as inventory or receivables, excluding cash itself.
  • Current Liability
    Obligations due within one year, like accounts payable, affecting cash flow calculations in the indirect method.
  • Accounts Payable
    Amounts owed to suppliers for goods or services received, classified as a current liability on the balance sheet.
  • Inventory
    Goods held for sale or production, classified as a current asset and impacting cash flow when its balance changes.
  • Book Value
    The recorded value of an asset on the balance sheet, used to determine gains or losses upon sale.
  • Income Statement
    A financial report showing revenues and expenses over a period, providing the net income figure for cash flow calculations.
  • Working Capital
    The difference between current assets and current liabilities, with changes affecting operating cash flows.