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Home Statement of Cash Flows Steps in Preparing Statement of Cash Flows

Steps in Preparing Statement of Cash Flows:

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Unlike other major financial statements, statement of cash flows is not prepared from the adjusted trial balance. The information to prepare this statement usually comes from three sources. These are:

  • Comparative balance sheets that provide the amount of the changes in assets liabilities, and equities from the beginning to the end of the period.

  • Current income statement data that help readers determine the amount of cash provided by or used by operations during the period.

  • Selected transaction data from the general ledger that provide additional detailed information needed to determine hw cash was provided or used during the period.

Preparing statement of cash flows from the data source above involves three major steps:

Determine the change in cash:

This procedure is straightforward because the difference between the beginning and the ending cash balance can be easily computed from an examination of the comparative balance sheets.

Determine the net cash flow from operating activities:

This procedure is complex. It involves analyzing not only the current year's income statement but also comparative balance sheets and selected transaction data.

Determine net cash flows from investing and financing activities:

All other changes in the balance sheet accounts must be analyzed to determine their effects on cash.

More study material from this to

More study material from this topic:

Definition, Explanation and Purpose of the Statement of Cash Flows
Classification of Cash Flows
Format and Sections of Statement of Cash Flows
Steps in Preparing Statement of Cash Flows
Statement of Cash Flows - Direct Method
Statement of Cash Flows - Indirect Method
Direct versus Indirect Method of Cash Flows




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