Step 1: Set up a cash flow table, with each account shown in the balance sheet having its own

row. Total Dr = Total Cr = 0

Step 2: Calculate the change in cash
Step 3: Calculate and analyze the changes in retained earnings and dividends payable (if there is a Dividends Payable account)
Step 4: Calculate and analyze the changes in the non-cash current assets and current liabilities (excluding Dividends Payable account)
Step 5. Calculate and analyze changes in non-current asset accounts
Step 6: Calculate and analyze changes in Long-term Liability and Share Capital accounts
Step 7: Reconcile the analysis (Must agree with balance in step 2)
Step 8. Prepare a statement of cash flows. 'CASH FLOW STATEMENT'!A46

Step 1 2016 2015 Note Change in accounts

Account Dr (Cr) Dr (Cr) Movement Dr Cr
Cash 27 150 Decrease 123 Step 2
Accounts receivable 375 450 Decrease 75 Step 4
Merchandise inventory 900 450 Increase 450 Step 4
Prepaid expense 20 10 Increase 10 Step 4
Land 70 70 No change 0 Step 5
Buildings 1340 620 Increase 720 Step 5
Acc. Depn. - buildings -430 -280 Increase 150 Step 5
Machinery 1130 920 Increase 'ADDITIONAL
'ADDITIONALINFORMATION'!C4
INFORMATION'!C3
Step 5
Acc. Depn. - machinery -250 -240 Increase 'ADDITIONAL
'ADDITIONALINFORMATION'!D5
INFORMATION'!D4
Step 5
Accounts payable -235 -145 Increase 90 Step 4
Dividends payable -25 -30 Decrease 'CASH FLOW STATEMENT'!A31
'ADDITIONAL
'CASH FLOW INFORMATION'!C8
STATEMENT'!B35
Step 3
Income taxes payable -40 -25 Increase 15 Step 4
Long-term loan payable -1000 -500 Increase 500 Step 6
Share capital -1210 -800 Increase 410 Step 6
Retained earnings -672 -650 Increase 'CASH FLOW STATEMENT'!A39
'ADDITIONAL INFORMATION'!C8
80 Step 3
Total 0 0 1180 1320
Variance -140 Step 7

Note 1: Dividends Payable

DR CR Bal
Beginning Balance 30 CR
Declared Dividends 'ADDITIONAL INFORMATION'!C8
#VALUE! CR
Dividends paid #VALUE!
Ending balance 25 CR

Note 2: Retained Earnings

DR CR Bal
Beginning Balance 650 CR
Net Income 80 730 CR
Declared Dividends 'ADDITIONAL INFORMATION'!C8
Ending balance 672 CR

STEP 8: PREPARE SCF

Example Corporation
Statement of Cash Flows
For the Year Ended Dec 31, 2016

Cash Flows from operating activities

Net Income 80

Adjustments to reconcile net income

Cash flows from operating activities
Decrease in AR 75
Increase in merchandise -450
Increase in prepaid expenses -10
Increase in AP 90
Increase in taxes payable 15
Depreciation exps #VALUE!
Loss on disposal of machinery 10
Net cash inflow from operating activites #VALUE!

Cash flows from investing activities

Proceeds from sale of machinery 30
Purchase of building -720
Purchase of machinery -350
Net cash outflow from investing activites -1040

Cash flows from financing activities

Payments of dividends #VALUE!
Proceeds from bank loan 500
Issuance of shares 410
Net cash outflow from investing activites #VALUE!
Net decrease in cash #VALUE! Must agree with Step 1 & Step 7
Cash beg balance 150 Agrees to Balance Sheet
Cash at year end #VALUE! Agrees to Balance Sheet
 Example Corporation
Income Statement
For the Year ended December 31, 2016
(000's)

K K
Sales 1200
Less: COGS 674
Gross Profit 526
Operating Expenses
Selling, General & Admin 115
Depreciation 260 375
Income from operations 151
Other revenues & expenses
Interest expense 26
Loss on disposal of machinery 10 36
Income before taxes 115
Income Tax 35
Net Income 80
 Example Corporation
Balance Sheet
At December 31
(000's)
2016 2015
Assets
Current assets K K
Cash 27 150
Accounts receivable 375 450
Merchandise Inventory 900 450
Prepaid expenses 20 10
Total current assets 1322 1060
Property, plant & equipment
Land 70 70
Buildings 1340 620
Less: Accumulated depreciation - buildings -430 -280
Machinery 1130 920
Less: Accumulated depreciation - machinery -250 -240
Total Property, plant & equipment 1860 1090
Total Assets 3182 2150

Liabilities
Current liabilities
Accounts payable 235 145
Dividends payable 25 30
Income taxes payable 40 25
Total current liabilities 300 200
Long-term loan payable 1000 500
Total Liabilities 1300 700
Equity
Common Shares 1210 800
Retained earnings 672 650
Total Equity 1882 1450
Total Liabilities & Equity 3182 2150
 Example Corporation
Statement of Changes in Equity
For the Year ended December 31, 2016
(000's)

Share Retained Total

Capital Earnings Equity
Opening Balance 800 650 1450
Common shares issued 410 410
Net Income 80 80
Dividends declared -58 -58
Ending balance 1210 672 1882
Num Description K K K
1 A building was purchased for K720 720 'CASH FLOW STATEMENT'!A1
2 Machinery was purchased for K350 350
3 Machinery costing K140 with accumulated depreciation of K100
was sold for K30 140 100 30
4 Total depreciation expense of K260 was recorded during the year;
K150 on the building and K110 on the machinery 150 110
5 Example Corporation received K500 from issuing a long-term loan
with the bank 500
6 Shares issued were for K410 cash 410
7 K58 of dividends were declared during the year. 58