Corporatefinanceinstitute com 1 The Corporate Finance Institute Accounting For more eBooks please visit

EBT or Pretax Income
Earnings before tax or pretax income is calculated by subtracting 
interest expense from EBIT. This is the final subtotal before finding net 
income.
Income Taxes
Income taxes refer to relevant taxes to the pre-tax income.
Net Income
After deducting income taxes from pre-tax income, the remaining 
amount is the net income. This is the amount that flows into retained 
earnings, after deductions for any cash or stock dividends.

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The Corporate Finance Institute
Accounting
The Statement of Cash Flows is one of the key financial statements that 
report the cash generated and spent during a specific period of time. 
Therefore, similar to the income statement, these statements cover a 
certain period, i.e. for the year ended December 31, 2017. The statement 
of cash flows is divided into three main sections:
•
Operating Section: The principal revenue-generating activities of an
organization and other activities that are not investing or financing;
any cash flows from current assets and current liabilities
•
Investing Section: Any cash flows from the acquisition and disposal
of long-term assets and other investments not included in cash
equivalents
•
Financing Section: Any cash flows that result in changes in the size
and composition of the contributed equity and borrowings of the
entity (i.e. bonds, stock, cash dividends)
How to Prepare a Statement of Cash Flows 
The operating section of the statement of cash flows can be shown 
either through the direct method or the indirect method. For either 
method, the investing and financing sections are identical and the only 
difference is in the operating section. The direct method is a method 
that shows the major classes of gross cash receipts and gross cash 
payments. The indirect method, on the other hand, starts with net 
income and adjusts the profit/loss by the effects of the transactions. 
In the end, cash flows from the operating section will give the same 
result whether under the direct or indirect approach, however, the 
presentation will differ. The International Accounting Standards Board 
(IASB) favors the direct method of reporting, because it provides more 
useful information that the indirect method. However, it is believed that 
greater than 90% of companies use the indirect method.