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Cash Flow Statement

Financial Statements

Cash Flow Statement

The last financial statement, the Cash Flow Statement is prepared to report all the changes in cash that occurred over a period of time usually a month or year.
The major sections of the statement are the heading, a section for reporting the increases in cash (resources provided by), a section for reporting the decreases in cash (resources applied to), and a summary of the change in cash (increase/decrease) for the period.

If the business was in operation in the previous year, the prior year balance sheet along with the current year balance sheet and current year income statement is needed in order to prepare the statement. Additional analysis of some of the accounts may also be needed.

Our example assumes that ABC Mowing’s prior year balance sheet is as follows:
ABC Mowing
Balance Sheet
As Of December 31,xxxx Prior Year


Accounts Receivable600
Mowing Equipment2,500
 Total Assets $9,500


Accounts Payable$2,000
 Total Liabilities $2,000

Owner's Equity

ABC Capital

Total Liabilities & Equity $,9500

Using the above prior year balance sheet along with the current year balance sheet and income statement we prepared the following Statement Of Changes in Cash:
Summary of how to prepare the statement:

The first step is determining the cash provided or used by operations and begins with the operating income for the period.

Adjustments are made to the income for revenue or expenses items that did not provide or use cash.

Additional adjustments are made for all current and noncurrent accounts and are recorded as addition or subtractions depending upon their effect on cash based on their beginning of the year and end of the year balances.

This provides the information for the cash from operations. Additionally you need to analyze the balance sheet to find other cash transactions such as equipment purchases, investments, and loans.
ABC Mowing  
Cash Flow Statement  
For the Period Ending December 31,xxxx  
Operating Activities
Income from Operations820

Increase in Accounts Payable60

Increase in Supplies Inventory100
Increase in Accounts Receivable1,000
Cash Flow From Operations

Investing Activities
Purchase Of Equipment10,000
Cash Flow From From Investing

Financing Activities
Financing From Bank Loan10,000
Less:Payment Owner's Draws1,100
Cash Flow From Financing

Decrease In Cash

Change in Cash Balances

Cash Balances December 31,xxxx (Prior Year)

Less:Decrease in Cash Balances
Cash Balances December 31,xxxx (Current Year)

The simplified Cash Flow statement presented was prepared using the indirect method which adjusts net income to arrive at Cash Flow From Operations.

Lets' revisit this Statement of Cash Flows in the next lesson which also discusses another method for preparing this statement.

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