{"id":1413,"date":"2018-07-17T00:17:48","date_gmt":"2018-07-17T00:17:48","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/?post_type=chapter&#038;p=1413"},"modified":"2024-04-29T17:36:44","modified_gmt":"2024-04-29T17:36:44","slug":"preparing-a-statement-of-cash-flow","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/chapter\/preparing-a-statement-of-cash-flow\/","title":{"raw":"Preparing a Statement of Cash Flow","rendered":"Preparing a Statement of Cash Flow"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Objectives<\/h3>\r\n<ul>\r\n \t<li>Prepare a statement of cash flow using the indirect method<\/li>\r\n<\/ul>\r\n<\/div>\r\nOk, so let\u2019s put together all of the great stuff we have learned about cash flow! A reminder the indirect method is working from the bottom of the income statement and adjusting it to the cash basis. So we would take the net income, and work from there.\r\n\r\nSo here is our income statement on the accrual basis:\r\n<table style=\"border-collapse: collapse; width: 100%;\" border=\"1\">\r\n<thead>\r\n<tr>\r\n<th style=\"width: 50%; text-align: center;\" colspan=\"2\">Income Statement<\/th>\r\n<\/tr>\r\n<tr>\r\n<th style=\"width: 50%; text-align: center;\" colspan=\"2\">Month ended 1\/31\/XX<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50%; height: 15px;\"><\/td>\r\n<th style=\"width: 50%; height: 15px;\" scope=\"col\">Accrual Basis<\/th>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 50%; height: 15px;\" scope=\"colgroup\"><span style=\"text-decoration: underline;\"><strong>Income<\/strong><\/span><\/th>\r\n<td style=\"width: 50%; height: 15px;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50%; height: 15px;\">Sales<\/td>\r\n<td style=\"width: 50%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">25000<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50%; height: 15px;\"><\/td>\r\n<td style=\"width: 50%; height: 15px;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 50%; height: 15px;\" scope=\"colgroup\"><span style=\"text-decoration: underline;\"><strong>Expenses<\/strong><\/span><\/th>\r\n<td style=\"width: 50%; height: 15px;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Rent<\/th>\r\n<td style=\"width: 50%; text-align: right; height: 15px;\">1000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Utilities<\/th>\r\n<td style=\"width: 50%; text-align: right; height: 15px;\">1000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Supplies<\/th>\r\n<td style=\"width: 50%; text-align: right; height: 15px;\">1250<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Payroll<\/th>\r\n<td style=\"width: 50%; text-align: right; height: 15px;\">5000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Depreciation<\/th>\r\n<td style=\"width: 50%; text-align: right; height: 15px;\">4000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Other Expenses<\/th>\r\n<td style=\"width: 50%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">2500<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50%; height: 15px;\"><\/td>\r\n<td style=\"width: 50%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">10250<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nOur net income is $10,250, so we will start there and work up to our cash flow statement\r\n\r\nThe first step is to add back our depreciation, because that is a non-cash expense!\r\n<table style=\"border-collapse: collapse; width: 100%;\" border=\"1\">\r\n<tbody>\r\n<tr>\r\n<th style=\"width: 50%;\" scope=\"row\">Net Income<\/th>\r\n<td style=\"width: 50%; text-align: right;\">10250<\/td>\r\n<\/tr>\r\n<tr>\r\n<th style=\"width: 50%;\" scope=\"row\">Add: Depreciation (non-cash expense)<\/th>\r\n<td style=\"width: 50%; text-align: right;\">4000<\/td>\r\n<\/tr>\r\n<tr>\r\n<th style=\"width: 50%;\" scope=\"row\">Total<\/th>\r\n<td style=\"width: 50%; text-align: right;\">14250<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nThis balance will move to the cash flow statement!\r\n\r\nThe second step is to analyze the net changes in the balance sheet accounts that we discussed earlier. Accounts receivable, accounts payable and the other current assets and liabilities will also affect the cash flow of the company.\r\n\r\nSo let\u2019s assume the following changes:\r\n<table style=\"border-collapse: collapse; width: 50%;\" border=\"1\">\r\n<tbody>\r\n<tr>\r\n<td style=\"width: 50.3486%;\"><\/td>\r\n<th style=\"width: 16.187%; text-align: left;\" scope=\"col\">1\/1\/XX<\/th>\r\n<th style=\"width: 16.5573%; text-align: left;\" scope=\"col\">1\/31\/XX<\/th>\r\n<td style=\"width: 32.0111%; text-align: right;\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th style=\"width: 50.3486%;\" scope=\"row\">Accounts Receivable<\/th>\r\n<td style=\"width: 16.187%; text-align: right;\">5000<\/td>\r\n<td style=\"width: 16.5573%; text-align: right;\">4000<\/td>\r\n<td style=\"width: 32.0111%; text-align: right;\">decrease<\/td>\r\n<\/tr>\r\n<tr>\r\n<th style=\"width: 50.3486%;\" scope=\"row\">Inventory<\/th>\r\n<td style=\"width: 16.187%; text-align: right;\">3000<\/td>\r\n<td style=\"width: 16.5573%; text-align: right;\">5000<\/td>\r\n<td style=\"width: 32.0111%; text-align: right;\">increase<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"width: 50.3486%;\"><\/td>\r\n<td style=\"width: 16.187%; text-align: right;\"><\/td>\r\n<td style=\"width: 16.5573%; text-align: right;\"><\/td>\r\n<td style=\"width: 32.0111%; text-align: right;\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th style=\"width: 50.3486%;\" scope=\"row\">Accounts payable<\/th>\r\n<td style=\"width: 16.187%; text-align: right;\">2500<\/td>\r\n<td style=\"width: 16.5573%; text-align: right;\">3850<\/td>\r\n<td style=\"width: 32.0111%; text-align: right;\">increase<\/td>\r\n<\/tr>\r\n<tr>\r\n<th style=\"width: 50.3486%;\" scope=\"row\">Income taxes payable<\/th>\r\n<td style=\"width: 16.187%; text-align: right;\">1000<\/td>\r\n<td style=\"width: 16.5573%; text-align: right;\">500<\/td>\r\n<td style=\"width: 32.0111%; text-align: right;\">decrease<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nThis information will come in handy in the next step!\r\n\r\nSo how do these items affect cash? Going back to our chart from our discussion about indirect cash flow analysis we know that:\r\n<table border=\"1\">\r\n<tbody>\r\n<tr>\r\n<td><\/td>\r\n<td>If the account balance increases<\/td>\r\n<td>If the account balance decreases<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><strong>Current Assets<\/strong><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Accounts Receivable (money from customers)<\/td>\r\n<td>Subtract<\/td>\r\n<td>Add<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Inventory (buy or pay for inventory)<\/td>\r\n<td>Subtract<\/td>\r\n<td>Add<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Prepaid expenses (insurance)<\/td>\r\n<td>Subtract<\/td>\r\n<td>Add<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><strong>Current Liabilities<\/strong><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Accounts Payable (pay your bills)<\/td>\r\n<td>Add<\/td>\r\n<td>Subtract<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Accrued Liabilities (payroll)<\/td>\r\n<td>Add<\/td>\r\n<td>Subtract<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Income taxes payable (tax payments)<\/td>\r\n<td>Add<\/td>\r\n<td>Subtract<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nSo, here is the final deal!\r\n<p style=\"text-align: center;\"><strong>Cash Flow Statement: Operating Activities-Indirect Method<\/strong><\/p>\r\n\r\n<table class=\"alignleft\" style=\"border-collapse: collapse; width: 100%;\" border=\"1\">\r\n<tbody>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 56.1135%; height: 15px;\"><\/td>\r\n<td style=\"width: 14.3013%; height: 15px;\">1\/1\/XX<\/td>\r\n<td style=\"width: 15.2839%; height: 15px;\">1\/31\/XX<\/td>\r\n<td style=\"width: 14.3013%; height: 15px;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 56.1135%; height: 15px;\">Accounts receivable<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">$5,000<\/td>\r\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\">$4,000<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">decrease<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 56.1135%; height: 15px;\">Inventory<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">$3,000<\/td>\r\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\">$5,000<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">increase<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 56.1135%; height: 15px;\"><\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\r\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\"><\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 56.1135%; height: 15px;\">Accounts payable<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">$2,500<\/td>\r\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\">$3,850<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">increase<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 56.1135%; height: 15px;\">Income taxes payable<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">$1,000<\/td>\r\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\">$500<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">decrease<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 56.1135%; height: 15px;\"><\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\r\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\"><\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 56.1135%; height: 15px;\">Beginning cash<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">$14,250<\/td>\r\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\"><\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 56.1135%; height: 15px;\"><strong>Decrease<\/strong> in accounts receivable<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">$1,000<\/td>\r\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\">increase cash<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 56.1135%; height: 15px;\"><strong>Increase<\/strong> in inventory<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><span style=\"color: #ff0000;\">($2,000)<\/span><\/td>\r\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\">decrease cash<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 56.1135%; height: 15px;\"><\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\r\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\"><\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 56.1135%; height: 15px;\"><strong>Increase<\/strong> in accounts payable<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">$1,350<\/td>\r\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\">increase cash<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 56.1135%; height: 15px;\"><strong>Decrease<\/strong> in income tax payable<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><span style=\"color: #ff0000;\">($500)<\/span><\/td>\r\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\">decrease cash<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 56.1135%; height: 15px;\">Net change in cash<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><span style=\"color: #ff0000;\">($150)<\/span><\/td>\r\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\"><\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 56.1135%; height: 15px;\">Ending cash<\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\"><strong>$14,100<\/strong><\/span><\/td>\r\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\"><\/td>\r\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p style=\"text-align: left;\">So the income statement and balance sheet only show part of the picture. A company can have awesome sales, but if they struggle to collect on their accounts receivable, they may have issues with their cash flow! It is important as a manager to look at the big picture, in order to find ways to increase profits and create a positive cash flow!<\/p>\r\n\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Questions<\/h3>\r\nhttps:\/\/assess.lumenlearning.com\/practice\/bd3ff2a6-8045-413a-990b-ef7b29c47f9b\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Objectives<\/h3>\n<ul>\n<li>Prepare a statement of cash flow using the indirect method<\/li>\n<\/ul>\n<\/div>\n<p>Ok, so let\u2019s put together all of the great stuff we have learned about cash flow! A reminder the indirect method is working from the bottom of the income statement and adjusting it to the cash basis. So we would take the net income, and work from there.<\/p>\n<p>So here is our income statement on the accrual basis:<\/p>\n<table style=\"border-collapse: collapse; width: 100%;\">\n<thead>\n<tr>\n<th style=\"width: 50%; text-align: center;\" colspan=\"2\">Income Statement<\/th>\n<\/tr>\n<tr>\n<th style=\"width: 50%; text-align: center;\" colspan=\"2\">Month ended 1\/31\/XX<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50%; height: 15px;\"><\/td>\n<th style=\"width: 50%; height: 15px;\" scope=\"col\">Accrual Basis<\/th>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 50%; height: 15px;\" scope=\"colgroup\"><span style=\"text-decoration: underline;\"><strong>Income<\/strong><\/span><\/th>\n<td style=\"width: 50%; height: 15px;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50%; height: 15px;\">Sales<\/td>\n<td style=\"width: 50%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">25000<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50%; height: 15px;\"><\/td>\n<td style=\"width: 50%; height: 15px;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 50%; height: 15px;\" scope=\"colgroup\"><span style=\"text-decoration: underline;\"><strong>Expenses<\/strong><\/span><\/th>\n<td style=\"width: 50%; height: 15px;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Rent<\/th>\n<td style=\"width: 50%; text-align: right; height: 15px;\">1000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Utilities<\/th>\n<td style=\"width: 50%; text-align: right; height: 15px;\">1000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Supplies<\/th>\n<td style=\"width: 50%; text-align: right; height: 15px;\">1250<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Payroll<\/th>\n<td style=\"width: 50%; text-align: right; height: 15px;\">5000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Depreciation<\/th>\n<td style=\"width: 50%; text-align: right; height: 15px;\">4000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 50%; height: 15px;\" scope=\"row\">Other Expenses<\/th>\n<td style=\"width: 50%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">2500<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50%; height: 15px;\"><\/td>\n<td style=\"width: 50%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">10250<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Our net income is $10,250, so we will start there and work up to our cash flow statement<\/p>\n<p>The first step is to add back our depreciation, because that is a non-cash expense!<\/p>\n<table style=\"border-collapse: collapse; width: 100%;\">\n<tbody>\n<tr>\n<th style=\"width: 50%;\" scope=\"row\">Net Income<\/th>\n<td style=\"width: 50%; text-align: right;\">10250<\/td>\n<\/tr>\n<tr>\n<th style=\"width: 50%;\" scope=\"row\">Add: Depreciation (non-cash expense)<\/th>\n<td style=\"width: 50%; text-align: right;\">4000<\/td>\n<\/tr>\n<tr>\n<th style=\"width: 50%;\" scope=\"row\">Total<\/th>\n<td style=\"width: 50%; text-align: right;\">14250<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>This balance will move to the cash flow statement!<\/p>\n<p>The second step is to analyze the net changes in the balance sheet accounts that we discussed earlier. Accounts receivable, accounts payable and the other current assets and liabilities will also affect the cash flow of the company.<\/p>\n<p>So let\u2019s assume the following changes:<\/p>\n<table style=\"border-collapse: collapse; width: 50%;\">\n<tbody>\n<tr>\n<td style=\"width: 50.3486%;\"><\/td>\n<th style=\"width: 16.187%; text-align: left;\" scope=\"col\">1\/1\/XX<\/th>\n<th style=\"width: 16.5573%; text-align: left;\" scope=\"col\">1\/31\/XX<\/th>\n<td style=\"width: 32.0111%; text-align: right;\"><\/td>\n<\/tr>\n<tr>\n<th style=\"width: 50.3486%;\" scope=\"row\">Accounts Receivable<\/th>\n<td style=\"width: 16.187%; text-align: right;\">5000<\/td>\n<td style=\"width: 16.5573%; text-align: right;\">4000<\/td>\n<td style=\"width: 32.0111%; text-align: right;\">decrease<\/td>\n<\/tr>\n<tr>\n<th style=\"width: 50.3486%;\" scope=\"row\">Inventory<\/th>\n<td style=\"width: 16.187%; text-align: right;\">3000<\/td>\n<td style=\"width: 16.5573%; text-align: right;\">5000<\/td>\n<td style=\"width: 32.0111%; text-align: right;\">increase<\/td>\n<\/tr>\n<tr>\n<td style=\"width: 50.3486%;\"><\/td>\n<td style=\"width: 16.187%; text-align: right;\"><\/td>\n<td style=\"width: 16.5573%; text-align: right;\"><\/td>\n<td style=\"width: 32.0111%; text-align: right;\"><\/td>\n<\/tr>\n<tr>\n<th style=\"width: 50.3486%;\" scope=\"row\">Accounts payable<\/th>\n<td style=\"width: 16.187%; text-align: right;\">2500<\/td>\n<td style=\"width: 16.5573%; text-align: right;\">3850<\/td>\n<td style=\"width: 32.0111%; text-align: right;\">increase<\/td>\n<\/tr>\n<tr>\n<th style=\"width: 50.3486%;\" scope=\"row\">Income taxes payable<\/th>\n<td style=\"width: 16.187%; text-align: right;\">1000<\/td>\n<td style=\"width: 16.5573%; text-align: right;\">500<\/td>\n<td style=\"width: 32.0111%; text-align: right;\">decrease<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>This information will come in handy in the next step!<\/p>\n<p>So how do these items affect cash? Going back to our chart from our discussion about indirect cash flow analysis we know that:<\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<td>If the account balance increases<\/td>\n<td>If the account balance decreases<\/td>\n<\/tr>\n<tr>\n<td><strong>Current Assets<\/strong><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Accounts Receivable (money from customers)<\/td>\n<td>Subtract<\/td>\n<td>Add<\/td>\n<\/tr>\n<tr>\n<td>Inventory (buy or pay for inventory)<\/td>\n<td>Subtract<\/td>\n<td>Add<\/td>\n<\/tr>\n<tr>\n<td>Prepaid expenses (insurance)<\/td>\n<td>Subtract<\/td>\n<td>Add<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><strong>Current Liabilities<\/strong><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Accounts Payable (pay your bills)<\/td>\n<td>Add<\/td>\n<td>Subtract<\/td>\n<\/tr>\n<tr>\n<td>Accrued Liabilities (payroll)<\/td>\n<td>Add<\/td>\n<td>Subtract<\/td>\n<\/tr>\n<tr>\n<td>Income taxes payable (tax payments)<\/td>\n<td>Add<\/td>\n<td>Subtract<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>So, here is the final deal!<\/p>\n<p style=\"text-align: center;\"><strong>Cash Flow Statement: Operating Activities-Indirect Method<\/strong><\/p>\n<table class=\"alignleft\" style=\"border-collapse: collapse; width: 100%;\">\n<tbody>\n<tr style=\"height: 15px;\">\n<td style=\"width: 56.1135%; height: 15px;\"><\/td>\n<td style=\"width: 14.3013%; height: 15px;\">1\/1\/XX<\/td>\n<td style=\"width: 15.2839%; height: 15px;\">1\/31\/XX<\/td>\n<td style=\"width: 14.3013%; height: 15px;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 56.1135%; height: 15px;\">Accounts receivable<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">$5,000<\/td>\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\">$4,000<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">decrease<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 56.1135%; height: 15px;\">Inventory<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">$3,000<\/td>\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\">$5,000<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">increase<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 56.1135%; height: 15px;\"><\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\"><\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 56.1135%; height: 15px;\">Accounts payable<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">$2,500<\/td>\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\">$3,850<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">increase<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 56.1135%; height: 15px;\">Income taxes payable<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">$1,000<\/td>\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\">$500<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">decrease<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 56.1135%; height: 15px;\"><\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\"><\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 56.1135%; height: 15px;\">Beginning cash<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">$14,250<\/td>\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\"><\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 56.1135%; height: 15px;\"><strong>Decrease<\/strong> in accounts receivable<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">$1,000<\/td>\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\">increase cash<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 56.1135%; height: 15px;\"><strong>Increase<\/strong> in inventory<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><span style=\"color: #ff0000;\">($2,000)<\/span><\/td>\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\">decrease cash<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 56.1135%; height: 15px;\"><\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\"><\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 56.1135%; height: 15px;\"><strong>Increase<\/strong> in accounts payable<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\">$1,350<\/td>\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\">increase cash<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 56.1135%; height: 15px;\"><strong>Decrease<\/strong> in income tax payable<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><span style=\"color: #ff0000;\">($500)<\/span><\/td>\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\">decrease cash<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 56.1135%; height: 15px;\">Net change in cash<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><span style=\"color: #ff0000;\">($150)<\/span><\/td>\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\"><\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 56.1135%; height: 15px;\">Ending cash<\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\"><strong>$14,100<\/strong><\/span><\/td>\n<td style=\"width: 15.2839%; text-align: right; height: 15px;\"><\/td>\n<td style=\"width: 14.3013%; text-align: right; height: 15px;\"><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p style=\"text-align: left;\">So the income statement and balance sheet only show part of the picture. A company can have awesome sales, but if they struggle to collect on their accounts receivable, they may have issues with their cash flow! It is important as a manager to look at the big picture, in order to find ways to increase profits and create a positive cash flow!<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Questions<\/h3>\n<p>\t<iframe id=\"assessment_practice_bd3ff2a6-8045-413a-990b-ef7b29c47f9b\" class=\"resizable\" src=\"https:\/\/assess.lumenlearning.com\/practice\/bd3ff2a6-8045-413a-990b-ef7b29c47f9b?iframe_resize_id=assessment_practice_id_bd3ff2a6-8045-413a-990b-ef7b29c47f9b\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:300px;\"><br \/>\n\t<\/iframe>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-1413\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Preparing a Statement of Cash Flow. <strong>Authored by<\/strong>: Freedom Learning Group. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":23592,"menu_order":12,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Preparing a Statement of Cash Flow\",\"author\":\"Freedom Learning Group\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"0fc16826-940b-4282-95be-3ba69be1cb19, 2dea4779-727b-4106-8ab1-5ea73e62489f","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-1413","chapter","type-chapter","status-publish","hentry"],"part":112,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/1413","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/users\/23592"}],"version-history":[{"count":9,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/1413\/revisions"}],"predecessor-version":[{"id":4168,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/1413\/revisions\/4168"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/parts\/112"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/1413\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/media?parent=1413"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapter-type?post=1413"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/contributor?post=1413"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/license?post=1413"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}