Preparing the Statement of Cash Flows
General Preparation Process
Preparing the Statement of Cash Flows requires analyzing comparative balance sheets, the income statement, and additional transaction information to determine cash inflows and outflows.
- Calculate the change in cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.
- Determine operating cash flows.
- Identify investing activities.
- Identify financing activities.
- Verify that the net change reconciles beginning and ending cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.
Tip
Always reconcile beginning cash, cash equivalents, and restricted cash plus net cash flows to ending balances as a final accuracy check.
Summary
A properly prepared cash flow statement fully explains the change in cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents between two balance sheet dates.