Preparation of cash flow statements show cash items affecting cash in and pay out.There are two methods of preparing the cash flow: direct and indirect. Currently thepopular method of preparation of a cash flow statement is indirect, because it iseasier than the direct method. Crucial to the preparation of the cash flow statement isto understand the cycle of cash flow as a tool for evaluating the liquidity of abusiness. A cash flow statement indicates the business’ risks arising from the use ofcash and the acquisition of cash. Depreciation is important for the preparation of cashflow statements. However, the total impact of fixed assets is to reduce the list.Therefore the question arises whether the depreciation has or has no effect onprepared statements of cash flow. Important sources of cash are profits fromoperating the business. Activities included in the preparation of cash flow statementseither by, 1) direct means—operating activities arising from application of net profitfrom operations improved by non-cash items and adjusted to changes in currentassets and liabilities, and 2) indirect means—where the activity does not arise fromoperations.