Which financial statement component typically undergoes adjustment when using the indirect method?

When using the indirect method to prepare the cash flow statement, adjustments are typically made to operating profit. The indirect method begins with the net profit (or operating profit) from the income statement and adjusts it for changes in working capital, non-cash transactions, and other operating activities to arrive at cash flows from operating activities.

This process involves adding back non-cash expenses such as depreciation and adjusting for changes in accounts such as receivables, payables, and inventory. The adjustments reflect the actual cash generated or used in operating activities, which may differ from the reported operating profit due to accrual accounting practices, where transactions are recorded when they occur rather than when cash changes hands.

The other financial statement components listed do not typically undergo adjustments when using the indirect method to calculate cash flows. Shareholder equity, total liabilities, and comprehensive income are not directly adjusted under this method; instead, the focus remains on reconciling the operating profit to cash flow from operations. Therefore, adjustments during the preparation of the cash flow statement with the indirect method primarily concern operating profit.