Lesson 25

Question 1

Information to prepare the SCF comes from 3 sources ….

Answer 1

1. Comparative balance sheets provide the amount of the changes in assets, liabilities, and equity from the beginning to the end of the period.
2. Current income statement data help determine the amount of cash provided by or used by operations during the period.
3. Selected transaction data from the general ledger provide additional detailed information needed to determine how the company provided or used cash during the period.

Question 2

what are the 3 majors steps in preparing the SCF?

Answer 2

1. Determine the change in cash. Compute the difference between the beginning and the ending cash balance from examining its comparative balance sheets.
2. Determine the net cash flow from operating activities. Analyzing the current year’s income statement but also comparative balance sheets as well as selected transaction date.
3. Determine net cash flows from investing and financing activities. Analyze all other changes in the balance sheet accounts to determine their effects on cash.

Question 3

What is the indirect method (Reconciliation method)?

Answer 3

It starts with net income and converts it to net cash flow from operating activities.

It adjusts net income for items that affected reported net income but did not affect cash.