Question

Identify and explain the major steps involved in preparing the statement of cash flows.

please type the answer

Answer 1

Answer:

There are four most important steps involved in preparing a cash flow statement:-

Step 1: Find out cash flow from working activities: change net income as per income statement from accrual basis to cash basis. We have two methods to compute cash flow from working activities.

a) Direct method.

b) indirect method

Step 2 :. Find out cash flow from investing activities: In this step we find out the effect of changes in non present assets have on cash. Balance of non present assets can be taken from balance sheet along with other similar items like sale of non present asset in cash/ buy of non present assets in cash.

Step 3. Find out cash flow from financing activities: in this step we find out the effect of changes in non present liabilities and owners equity on cash balance. Non present liability and owners equity can be find out from balance sheet along with other related items (eg - dividend paid in cash ).

Step 4. Reconcile the change in cash: this is the last and the final step is resolve the total of increase/decrease in cash flows from working activities , investing activities, financing activities as computed in step 1,2, 3 above wit h cash balance as provided in the balance sheet.