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Finance for Non-Financial Managers
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Cash Receipts
Amounts collected from customers $372,500
Advances from bank credit line 7,500
Sale of short-term investments 24,000
Total Cash Receipts 404,000
Cash Disbursements
Paid to creditors 308,200
Payroll and payroll taxes paid 122,600
Purchase of new equipment 45,000
Payments on long-term debt 1,000
Dividend payments 5,000
Total Cash Disbursements 481,800
Net Cash Flow (Drain) (77,800)
Add balance of cash—beginning of period 42,500
Balance of cash—end of period ($35,300)

Figure 6-1. Statement of cash receipts and disbursements

tion of net income on this report or any attempt to explain the
difference between net income and net cash flow—a key ques-
tion for anyone managing a company. It also doesn’t show
inflows and outflows grouped by purpose in any meaningful way
and there’s more information that can be communicated there
as well. A variation was once called the Statement of Sources
and Applications of Funds, but it was only marginally more use-
ful and is rarely seen these days.
That’s why the indirect method was developed, why it’s the
standard report format used in published annual reports, and
why it’s the format that comes out of nearly all accounting soft-
ware programs when you ask for a statement of cash flow. It’s a
bit harder to understand initially, but the potential for meaningful
analysis is far greater. That’s why we’ll discuss only the indirect
method format in this chapter and try to give you a sense of
what each line is telling you. If you find you need to read this
section over a few times to get the concepts working for you, it
will be time well spent.