Statement of Cash Flow Indirect Method Cash & Net Income

We will start to put together a statement of cash flows using the indirect method. We have constructed a worksheet from a comparative balance sheet showing balance sheet accounts for the current period, the prior period and the difference or change between the two. Our next step is to allocate these changes in balance sheet account from the worksheet to the statement of cash flows, finding the correct section of either operating activities, investing activities, or financing activities. The starting point is often the most confusing. The end result of our cash flow statement is basically the change in cash. We start the cash flows from operations section with net income but we would like to think about net income as a change in balance sheet accounts. Net income will be part of the change in retained earnings.
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Direct Method Worksheet Statement of Cash Flows

Direct method worksheet – statement of cash flows will put together a working in Excel that we will use to build the statement of cash flows using the direct method. Putting together a well formatted worksheet is the most important step to being able to complete a statement of cash flows. To put a statement of cash flows worksheet together we will need a comparative balance sheet, or balance sheet numbers for the current period and the prior period. The statement of cash flows worksheet we use for the direct method will be similar to the statement of cash flows worksheet we use for the indirect method but not the same. We will include the income statement accounts for the current period when performing the statement of cash flows using the direct method.
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Statement of Cash Flows – Tools Needed For Completion

Statement of cash flows – Tools needed for completion will talk about the tools we will need to complete a statement of cash flows. The statement of cash flows will generally be the last financial statement we will prepare. In other words, we will prepare the balance sheet, income statement, and statement of equity before the statement of cash flows. The primary tool financial statement we will use will be the balance sheet. We will need a comparative balance sheet or a balance sheet showing the current period and the prior period. From this balance comparative balance sheet will generally create a worksheet showing us the changes from year to year. We will also need the income statement. When using the indirect method the income statement will be necessary to verify some balances. We will also need additional information which is often given in a book problem. In practice we would need the general ledger for some accounts and access to supporting documents for some transactions.
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Statement of Cash Flows-Indirect Method-Change In Accounts Payable

Statement of cash flows using the indirect method and concentrating on the change in accounts payable. The indirect method will differ from the direct method by starting with net income and entering adjustments to arrive at cash flows from operations. The indirect method reconciles net income to cash flows from operations by analyzing the changes in balance sheets accounts, in current assets and current liabilities. When considering these changes we can learn a rule that helps us construct the statement of cash flows and it is also useful to understand the reasoning behind the rule.
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Statement of Cash Flow Investing Activities -Cash Paid for Equipment

Statement of cash flows investing activities will look at cash flows related to investing activities. Investing activities will include cash flows from investments like stocks and bonds but also includes investments in long term assets like property plant and equipment. Cash outflows and cash inflows for property plant and equipment will be included in the investing activities section. Because equipment is often financed when purchased we often need to look at the detail of the transaction to complete the investing activities section.
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Statement of Cash Flows Strategy – Cash Flow Thought Process

Statement of cash flows strategy will go over how we can think about cash flows. The most obvious and direct way to think about cash flows is to think about the change in cash over a time period. To analyze a change in cash we can go to the general ledger to look at the detail of activity that happen for a period of time. The general ledger will show transactions related to cash by date. Although this method makes the most since is does have problems. The cash account will have a lot of transactions in the general ledger, more them most any other account. It may be difficult to re-categorize each transaction. We can also think about the cash flow using the accounting equation, and this is often the approach we will use in practice.
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