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Cash Flow Statment

The document outlines the steps for preparing a cash flow statement using the indirect method, starting with net income and adjusting for non-cash expenses and changes in working capital. It details operating activities, investing activities related to long-term assets, and financing activities involving capital. Additionally, it mentions noncash activities that impact financial structure but not cash flow, such as issuing stock for bonds.

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rahathussyn2016
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17 views2 pages

Cash Flow Statment

The document outlines the steps for preparing a cash flow statement using the indirect method, starting with net income and adjusting for non-cash expenses and changes in working capital. It details operating activities, investing activities related to long-term assets, and financing activities involving capital. Additionally, it mentions noncash activities that impact financial structure but not cash flow, such as issuing stock for bonds.

Uploaded by

rahathussyn2016
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Step-by-Step Explanation:

🔹 Operating Activities
We start with net income of $26,000. Since the indirect method is used,
we adjust it for non-cash expenses and changes in working capital:

 Add depreciation and amortization: These are non-cash


expenses that reduce income but don’t impact cash, so we add
them back.
 Add back loss on sale of building: This is a non-operating loss, so
we reverse it.
 Adjust for current assets and liabilities:

 A decrease in prepaid expenses = cash inflow.


 An increase in inventory or receivables = cash outflow.
 Increases in payables = cash inflow.
 Decreases in liabilities (like accrued expenses) = cash outflow.

🔹 Investing Activities
These are related to long-term assets:

 Cash inflow from selling the building.


 Cash outflows for purchasing equipment and investments.

🔹 Financing Activities
These involve the firm’s capital:

 Cash inflow from issuing stock and borrowing.


 Cash outflow for dividend payments and buying treasury stock.
🔹 Noncash Activities

Reported in a separate schedule because they affect the financial


structure but not actual cash:

 Issuing stock in exchange for bonds.


 Acquiring intangible assets (like patents) via promissory note.

Let me know if you'd like this in Excel format or explained in the


context of financial statement analysis. I can also show you how to spot
patterns in cash flows to assess a company’s financial health.

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