The indirect method uses net income as a starting point, makes adjustments for a

ll transactions for non-cash items, then adjusts for all cash-based transactions
.
Decrease in non-cash current assets are added to net income;
Increase in non-cash current asset are subtracted from net income;
Increase in current liabilities are added to net income;
Decrease in current liabilities are subtracted from net income;
This method converts accrual-basis net income (or loss) into cash flow by using
a series of additions and deductions.
example A rise in accounts receivable should be subtracted, since they represent
cash that hasn't yet been collected (a fall in receivables should be added)
Start with net income.
Add back non-cash expenses.
(Such as depreciation and amortization)
Adjust for gains and losses on sales on assets.
Add back losses
Subtract out gains
Account for changes in all non-cash current assets.
Account for changes in all current assets and liabilities except notes payable a
nd dividends payable.
Direct method requires more information to prepare..