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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Where do the components of the changes in retained earnings appear in the statement of cash flows? Assume the indirect method is used to prepare the statement of cash flows.

To determine

Introduction:

Retained earnings are that part of the profit which is left out after paying dividends to the shareholders. This part of the profit is invested back in the business rather than distributing for the future growth of the business.

To state:

The place where the components of changes in retained earnings appear in the statement of cash flows using indirect method.

Explanation

The three key components of retained earnings are:

Accumulated old retained earnings:

All cash flows related to shareholder’s equity are recorded in financing activities and accumulated retained earnings are a part of shareholder’s equity.

Net income/loss after tax of current year:

Net income/loss is recorded as a part of operating activity...

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