Report and analyze the cash flows from operating activities using the indirect method.

- The indirect method for reporting cash flows from operating activities begins with net income and adjusts it for noncash items to produce net cash flow from operating activities.

- The adjustments to net income are necessary to eliminate statement of earnings items that do not affect cash and to adjust accrual-basis revenues and expenses to cash receipts and cash payments.

- Four types of adjustments are necessary:

- add to net income any noncash expenses and subtract from net income any noncash revenues;

- add to net income any losses and subtract from net income any gains;

- add to net income any decreases in current assets or increases in current liabilities that are related to operating activities; and

- subtract from net income any increases in current assets and decreases in current liabilities that are related to operating activities.