Instructions for a Cash Flows Statement-Indirect Method

Love Thy Pets Inc,. Statement of Cash Flows For the Year Ended, December 31, 2011 Cash flows from operating activities: Net Income Adjustments to reconcile net income to net cash provided by operating activities Depreciation Amortization Loss on disposal of store equipment Gain on disposal of office equipment Increase in accounts receivable Decrease in merchandise inventory Increase in prepaid expenses Decrease in accounts payable Increase in accrued expenses payable Net cash provided by operating activities Cash flows from investing activities: Purchase of equipment Sale of equipment Purchase of investment Sale of investment Net cash used by investing activities Cash flows from financing activities: Issuance of common stock Issuance of note or bonds payable Payment of dividends Redemption of bonds Purchase of treasury stock Net cash provided by financing activities Net increase (decrease) in cash Cash at beginning of period Cash at end of period

$XX,XXX

$XX,XXX XX,XXX XX,XXX (XX,XXX) (X,XXX) XXX (X,XXX) (XX,XXX) X,XXX

X,XXX XX,XXX

(XX,XXX) XX,XXX (X,XXX) X,XXX XX,XXX XX,XXX XX,XXX (X,XXX) (X,XXX) (X,XXX) XX,XXX X,XXX XX,XXX $XX,XXX

MJC Revised 4-2012

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Instructions for a Cash Flows Statement-Indirect Method
Contents
Operating section of cash flows statement: ................................................................................ 3 Investing section of the cash flows statement: ............................................................................ 4 Financing section of the cash flows statement:........................................................................... 4 End section of the cash flows statement: .................................................................................... 5

MJC Revised 4-2012

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Instructions for a Cash Flows Statement-Indirect Method
Step-by-Step Instructions
Start with the three-line header, which included the name of the corporation, the title of the statement, and the period for which the statement is being prepared.

Operating section of cash flows statement:
1. On the first line of the body of the statement in the far left hand column, place the title “Cash flows from operating activities.” Note: this is a heading and no dollar amount is placed in the columns to the right. 2. Next place “Net income” which you will get from the bottom of your income statement. Place the amount in the right hand column. 3. The next line is a titled, “Adjustments to reconcile net income to net cash provided by operating activities.” Note: this is a heading and no dollar amount is placed in the column to the right. 4. Always start by listing any depreciation, amortization, losses on disposal. These items come from the income statement and will always be positive because they are added back to net income. Gains on disposal are (negative) because they are subtracted from net income. The total proceeds (cash received for the sale of assets) from the sale of assets will be recorded in the investing section of the cash flow statement. Always start by listing any depreciation, amortization, and losses on disposal these items which come from the income statement will always be positive because they are added back to net income. Gains on disposal are (negative) because they are subtracted from net income. The total proceeds (cash received for the sale of assets) from the sale of assets will be recorded in the investing section of the cash flow statement. The amounts for depreciation, amortization and losses/gains on disposal are placed in the middle column. Remember if the depreciation is included in a larger item on the income statement it can be deduced by creating a t-account. Take from the balance sheet the beginning balance of accumulated depreciation subtract any accumulated depreciation for the disposal of an asset and then subtract that amount from the ending balance to get the amount of depreciation for the current year. 5. Next on the list is current assets, these items can either increase or decrease in amount over the year. The rule is simple for assets (subtract) any increases and add back any decrease in these items. Current assets are: Accounts receivable, Merchandise inventory, and prepaid expenses. Cash is not included in this list because it will be used at the end of the statement. The amounts are placed in the middle column.

MJC Revised 4-2012

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Instructions for a Cash Flows Statement-Indirect Method
6. Next on the list is current liabilities, again these items can either increase or decrease in amount over the year. The rule for the class of liabilities is also simple (subtract) any decreases and add any increases back. Current liabilities are: account payable, income tax payable, interest payable and any other payable account that is listed as a current liability. The amounts are placed in the middle column. 7. Total up all of the pluses and minuses values and place the total on the same line as the last liability with the amount in the far right hand column. 8. Depending on where the amount is positive or negative either add or subtract the total from the net income to get “Net cash provided by operating activities.”

Investing section of the cash flows statement:
1. This section starts with the section header “Cash flows from investing activities” placed in the left column. 2. On the next few lines place the titles for any of these events which occurred during the fiscal period: Plus Sale of equipment Sale of investment Minus Purchase of equipment Purchase of investment

Place the dollar amounts in the middle column. Any items in the minus column of the above chart will have brackets surrounding their dollar amounts. 3. Finally, for this section total the entire sales minus all of the purchases to get the results of this section. Place the title “Net cash provided by investing activities” if the result is positive or if the result is negative use the title “Net cash used by investing activities.” The resulting dollar amount is place in the right column.

Financing section of the cash flows statement:
1. Start this section with the header “Cash flows from financing activities” in the left column. 2. Place any of these item titles in this section if the events occurred during the fiscal period. Plus Sale of stock Sale of bonds or notes Minus Purchase of Treasury Stock Redemption of bonds or notes Payment of dividends

MJC Revised 4-2012

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Instructions for a Cash Flows Statement-Indirect Method
3. Finally, for this section total all of the sales minus all of the purchases, redemptions, and payments to get the results of this section. Use the title “Net cash provided by financing activities” if the result is positive or if the result is negative use the title “Net cash used by financing activities.” Place the title in the left column. The resulting dollar amount is place in the right column.

End section of the cash flows statement:
1. Start this section by placing the title “Net increase (decrease) in cash” in the left column. Total the results from the right column, which includes dollar amounts from operating activities, investing activities and financing activities. 2. Now place the title “Cash at the beginning of the period” in the left column. This dollar amount comes from the balance sheet at the end of the prior year. 3. Finally, either add (positive dollar amount) or subtract (negative amount) from the beginning of the period cash to get cash at end for the period. Place the title “Cash at end of period” in the left column.

MJC Revised 4-2012

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