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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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What are the five steps for preparing the statement of cash flows? What is the purpose of each step?

To determine

Explain the five steps included in preparing the statement of cash flows. Also, explain the purpose of each step.

Explanation

Cash Flow Statement:

Cash flow statement is a financial statement prepared to provide information about the sources and uses of cash in a firm. In this statement, the activities increasing cash are referred as cash inflows and the activities that decrease cash are referred as cash outflows.

The five steps included in preparing the statement of cash flows and their purpose is explained below:

  • Calculation of difference in cash: The difference between the ending cash balance and the beginning cash balance for the stated period should be calculated. The purpose of calculating this balance is to derive the correct amount of cash with the company. Also, this balance should match with the net cash inflow or outflow shown in the cash flow statement.
  • Cash flow from operating activities: The cash flow from operating activities is calculated with the help of the beginning and ending balance sheet of a company. The adjustments regarding the other transactions and events are made to obtain the correct amount. The purpose of calculating this amount is to know the total amount of cash flow made from the operational activities of the company...

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