Statement of cash flow is computed as follow:

Net cash provided (used) by operating activities xxx

+ Net cash provided (used) by investing activities xxx
+ Net cash provided (used) by financing activities xxx

= Net increase or (decrease) in cash ……………….. xxx

)+( beginning cash …………………………………………… xxx
= Cash at end of period ………………………………………. Xxx

under indirect method

net cash provided (used) by operating activities

Net income ………………………………… xxxx

Adjustment to reconcile net income
Accounts receivable To net cash provided by operating activities
Notes receivable  Depreciation expense
Inventory
 Patent amortization expense (+) Add
Prepaid expense
Supplies
 Depletion expense

 Increase in current asset (-) Deduct

Accounts payable  Decrease in current asset (+) Add
Income tax payable
Accrual expense payable  Increase in current liabilities (+) Add
 Decrease in current liabilities (-) deduct
Land
building
 Gain on sale of fixed assets (-) deduct
Equipment
Furniture  Loss on sale of fixed assets (+) Add
Machine Net cash provided (used) by operating activities
Tools
xxxx
Vehicles

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 Net cash flows from investing activities
Availiable for sale  Sale of long term assets
securities  Sale of long term investment (+) add
Excluded
 Collection of long term loan
 Trading securities
 Purchase of long term assets
 Purchase of long term investment (-) deduct
 Make a loan
 Lending money
Net cash provided (used) by investing activities xxx

net cash provided by financing activities

 Issuance or sale of common stock
 Issuance or sale of preferred stock
 Issuance of bonds payable add
 increase of notes payable

 Repaid of notes payable

 Redemption of bonds payable
 Payment of cash dividends deduct
 Payback long term loans
 Purchase of treasury stock
Net cash provided by financing activities xxx

Notes
 Receipt of interest and dividends are classified as operating activities.
 Collection of loan or to make a loan are classified investing activities
 Loan borrowed from abnk by signing note are classified as financing activities

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 under direct method
(-) Bad debt expense
Cash from operating activities
‫بطرحها ان وجدت فى المسالة‬
Cash receipts (+) Decrease of accounts receivable
Sales
from customers = or
Revenue
(-) increase of accounts receivable

Cash payment (+) increase in inventory (+) dercrease in A/P

1. To supplies = Cost of or or
Goods Sold (-) Decrease in inventory (-) increase in A/P

cash payment (+) increase in (+) decrease in accrued

Operating prepaid expense expenses payable
2. for operating expense = Expenses
(-) decrease in (-) increase in accrued
Prepaid expense expenses payable

excluded
(-) Bad debt expense
Depreciation expense ‫بطرحها ان وجدت فى المسالة‬
Or bad debt expense

Cash payment
Interest
3. for interest expense =
expenses

Cash payment (+) decrease in income taxes payable

4. For income taxes = Income tax or
Expense (-) increase in income taxes payable

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Some rules :

1. Retained earnings
Retained earning , jan 1 xx
Net income ………………………. xx
(-) payment of cash dividends xx
Retained earnings , dec 31 xx

2. to compute gain or loss on sales of fixed assets

Sales of fixed assets xx
(-) book value of fixed assets (xx)
= Gain or loss on sales of fixed assets xxx

4. depreciation expense
 Change increase or decrease in accumulated depreciation
 (+) accumulated depreciation = cost – book value

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