Cash Flow Statements - Indirect method – Reconciliation for Cash from Operations –from Accrual profit to Cash generated. Accrual profit recorded items below that did not involve Cash | Action to derive Cash | Explanations and reasons for adjustments necessary to derive Cash from Operations [Profit making activities] | 1 Depreciation buildings | Add back | Non cash expense that reduced profit | 2 Proceeds from sale of Asset | deduct | Non cash gain or profit that increased profit | 3 Carrying amount of Asset sold | Add back | Non cash expense/loss that reduced profit | 4 Loss on Disposal of Asset | Add back | Non cash Loss/expense that reduced profit. When 3 exceeds 2 | 5 Profit on Disposal of Asset | Deduct | Non Cash Profit/revenue. When 2 exceeds 3 | 6 Increase in current tax liability | Add back | Expense but not cash as DR Expense CR Liability [Companies only] | 7 Credit sales | Deduct | Non cash gain or profit | 8 Cost of sales | Add back | Non cash expense that reduced profit | 9 Stock /Stock valuation losses | Add back | Non cash expense that reduced profit | 10 Stock gain | Deduct | Non cash gain or profit | 11 Discount Allowed | Add back | Non cash expense that reduced profit | 12 Discount Received | Deduct | Non cash gain or profit | 13 Bad debts | Add back | Non cash gain or profit [direct method] | 14 Doubtful debts | Add Back | Non cash gain or profit [allowance method] | 15 Sales returns/allowances | Add back | Non cash expense [ contra entry] that reduced profit | 16 Purchases returns | Deduct | Non cash gain or profit [contra entry] that increases profit | 17 Stock of supplies used | Add back | Non cash expense that reduced profit | Indirect Method Changes in Current assets and Liabilities by comparing Balance Sheets | | If expense creates a