Professional Documents
Culture Documents
• Examine each business transaction to determine the nature of the transaction. For example, the
receipt of a supplier invoice means that an obligation has been incurred. Or, throwing out
obsolete inventory means that the inventory asset will be reduced.
• Determine which accounts will be affected. This calls for the identification of the general ledger
accounts that will be altered as a result of the transaction. For example, recording a supplier
invoice could mean that the office supplies expense account will be increased, as well as the
offsetting accounts payable
• Prepare a journal entry. This involves not just entering the transaction in the accounting system,
but also documenting it sufficiently so that someone reviewing the entry later will understand
why it was created. Ideally, the entry should note the impacted accounts, the debits and credits
entered, a journal entry number, and a narrative comment.
8 Cash Flow Statement Theory / Numerical
• The Statement of Cash Flows (also referred to as the cash flow statement) is one of the three key
financial statements that reports the cash generated and spent during a specific period of time
(i.e., a month, quarter, or year). The statement of cash flows acts as a bridge between the income
statement and balance sheet by showing how money moved in and out of the business.