Adjust for changes in current assets and liabilities, to reflect how those changes impact cash in a way that is different than is reported in net income.0.Reverse the effect of gains and/or losses from investing activities.In the following sections, specific entries are explained to demonstrate the items that support the preparation of the operating activities section of the Statement of Cash Flows (Indirect Method) for the Propensity Company example financial statements. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license) Prepare the Operating Activities Section of the Statement of Cash Flows Using the Indirect Method The remainder of this section demonstrates preparation of the statement of cash flows of the company whose financial statements are shown in Figure 16.2, Figure 16.3, and Figure 16.4.įigure 16.4 Statement of Cash Flows. Transactions that do not affect cash but do affect long-term assets, long-term debt, and/or equity are disclosed, either as a notation at the bottom of the statement of cash flow, or in the notes to the financial statements. Step 5: Present Noncash Investing and Financing Transactions Total net cash flow added to the beginning cash balance equals the ending cash balance.The beginning cash balance is presented from the prior year balance sheet.The net cash flows from the first three steps are combined to be total net cash flow.To reconcile beginning and ending cash balances: Step 4: Reconcile Total Net Cash Flows to Change in Cash Balance during the Period Step 3: Present Net Cash Flows from Financing Activitiesįinancing net cash flow includes cash received and cash paid relating to long-term liabilities and equity. Investing net cash flow includes cash received and cash paid relating to long-term assets. Step 2: Determine Net Cash Flows from Investing Activities
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