What happens if we purchase a building by signing a mortgage with no cash down payment? Or if we convert bonds payable to common stock, how would we account for these transactions? These transactions do not involve cash but they are significant enough for investors to need to know. We will report them in a separate section at the bottom of the statement of cash flows. For example, assume a company did purchase a $100,000 building by paying $20,000 down in cash and signed a note for the balance of $80,000. This would be reported as follows (note: the $20,000 down payment would be including in the investing section of the statement of cash flows):

In addition to disclosing transactions that do not otherwise appear on the statement of cash flows (non-cash transactions), companies using the direct approach must supplement the cash flow statement with a reconciliation of income to cash from operations. This reconciliation may be found in notes accompanying the financial statements. For our Rumble Corp. example it would look like this:

As you can see, it’s basically just the top portion of the statement prepared using the indirect method.

Companies using the indirect method have to disclose cash paid for interest and income taxes, since those numbers are not apparent on the face of the statement as they were under the direct method.