![]() ![]() Using the basic shell that includes the heading and formatting captions, complete the statement of cash flows. Steps in Preparing the Statement of Cash Flows The following section will show you how to prepare the statement of cash flows ( indirect method for operating activities section) on page 259 from the financial statements on page 255. From the balance sheet, ending Cash balance.From the balance sheet, beginning Cash balance.The difference between the beginning and ending Cash balances. ![]() Total of all the cash inflows (added) and cash outflows (deducted) equals net cash flows from financing activities.Beginning Cash Dividends Payable balance of 8,000 + cash dividends declared on the retained earnings statement of 3,000 - ending Cash Dividends Payable balance of 5,000.Decrease in Bonds Payable on the balance sheet from 50,000 to 0.Increases in Common Stock and Paid-in Capital accounts on the balance sheet (140,000 - 125,000) + (30,000 - 25,000).Total of all the cash inflows (added) and cash outflows (deducted) equals net cash flows from investing activities.Increase in Equipment on the balance sheet from 60,000 to 221,000 is the cash paid for new equipment since there were no sales of equipment.Cost of $80,000 given on the balance sheet plus the $10,000 gain shown on the income statement = the amount of cash received.Cost of $100,000 given on the balance sheet minus the $1,000 loss shown on the income statement = the amount of cash received.Total of all of the amounts in the operating activities section.Difference between beginning-of-year and end-of-year amounts on the balance sheet: 17,000 - 14,000.Difference between beginning-of-year and end-of-year amounts on the balance sheet: 22,000 - 29,000.Difference between beginning-of-year and end-of-year amounts on the balance sheet: 15,000 - 9,000.Difference between beginning-of-year and end-of-year amounts on the balance sheet: 80,000 - 112,000.Difference between beginning-of-year and end-of-year amounts on the balance sheet: 58,000 - 34,000.Other revenues and expenses section of the income statement - add back losses included in net income.Other revenues and expenses section of the income statement - deduct gains included in net income.Depreciation expense amount from the income statement.The operating activities section uses the indirect method. The following is a sample statement of cash flows that has been prepared based on the financial statements presented on page 255. The investing and financing section both are prepared using a direct method. The choice of methods pertains only to the operating activities section. The indirect method is more popular because the information needed to prepare the section is readily available on the income statement and balance sheet. Although information presented in the operating activities section is different, both methods yield the same cash flows from operating activities amount. The indirect method begins with net income from the income statement and mathematically backs out non-cash transactions to arrive at cash flows from operating activities.The direct method itemizes all of the operating cash inflows, or receipts, followed by a list of the operating cash ouflows, or payments. It may be prepared in one of two ways, using either the indirect or the direct method. The operating activities section of the statement of cash flows appears first. Notice there is no gain or loss on this transaction. Paid-in Capital in Excess of Par - Common StockĬash inflow: $180,000. Here is an example of a financing activity that results in a cash inflow: issuing common stock. When Cash is debited, here is a cash inflow. Buying or selling treasury stock and paying dividends are related to stock and are also financing activities. These include transactions involving the following: issuing common or preferred stock, issuingor redeeming bonds payable, and paying off a mortgage note payable. Investment activities include buying and/or selling any of the following: equipment, vehicles, buildings, land, patents, investments in stock, and investments in bonds.įinancing activities involve raising funds for a business and may include long-term debt or equity accounts found on the balance sheet. These are assets that are expected to last more than one year. Investment activities involve fixed or long-term assets that are found on the balance sheet. (Current assets and liabilities are those that are expected to be converted to cash within one year.) Most of a business’ transactions are operating activities. Accounts used for operating activities include all those on the income statement as well as current assets and current liabilities on the balance sheet. Operating activities are those involved in the day-to-day running of the business. \)Īll business transactions can be classified as one of three types of activities: operating, investing, or financing. ![]()
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