Using a Worksheet (Indirect Method)

Learning Outcomes

Demonstrate the use of a worksheet to create the Statement of Cash Flows

In order to ensure accuracy and make the process as efficient as possible, accountants have developed a worksheet process to create the statement of cash flows. We’ll demonstrate that process here using the indirect method because that is its most common use and the indirect method is the most common presentation.

First, we look at the beginning and ending balance sheets:

RUMBLE CORP
Spreadsheet for Statement of Cash Flows
Year Ended December 31, 20X1
Panel A – Balance Sheet	1/1/X1	Transaction Analysis		12/31/X1

Panel A – Balance Sheet	1/1/X1	Debit	Credit	12/31/X1
Cash	1,640			5,040
Accounts Receivable	1,750			1,735
Equipment	24,500			24,920
Accumulated Depreciation	(1,540)			(1,565)
Total Assets	26,350			30,130

Accounts Payable	(1,007)			(1,039)
Wages Payable	(55)			(135)
Income Taxes Payable	(42)			(60)
Note Payable – Long Term	0			(500)
Total Liabilities	(1,104)			(1,734)

Common Stock	(12,500)			(13,500)
Retained Earnings	(12,746)			(14,896)
Total Liabilities and Stockholders’ Equity	(26,350)			(30,130)
	0			0

We’re showing credit balances on this spreadsheet as negative numbers (in parenthesis), but different accountants may do this differently. Also notice the December 31, 20X0 balance is presented as the January 1, 20X1 balance. Again, that is personal preference.

We’ll add a template to the bottom of this balance sheet spreadsheet that we will use to capture the changes in cash:

Panel B – Statement of Cash Flows
Cash Flows from Operating Activities:
Net Income
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation Expense – Plant Assets
Decrease in accounts receivable
Gain on sale of equipment
Increase in Accounts Payable
Increase in Wages Payable
Increase in Income Taxes Payable
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Cash Paid for Acquisition of Plant Assets
Proceeds from sale of equipment
Net Cash Used for Investing Activities
Cash Flows from Financing Activities:
Cash Receipt from Issuance of Common Stock
Proceeds from issuance of long-term debt
Cash Payment of Dividends
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash:
Total
			–

And now we fill in the worksheet one line at a time, starting with accounts receivable.

Every debit will have to have a credit. Accounts receivable decreased by $15, so we credit that account on the spreadsheet and debit the corresponding line on the statement of cash flows.

RUMBLE CORP
Spreadsheet for Statement of Cash Flows
Year Ended December 31, 20X1
Panel A – Balance Sheet	1/1/X1	Transaction Analysis		12/31/X1

Panel A – Balance Sheet	1/1/X1	Debit	Credit	12/31/X1
Cash	1,640			1,640
Accounts Receivable	1,750		15	1,735
Equipment	24,500			24,500
Accumulated Depreciation	(1,540)			(1,540)
Total Assets	26,350	0	15	26,335

Accounts Payable	(1,007)			(1,007)
Wages Payable	(55)			(55)
Income Taxes Payable	(42)			(42)
Note Payable – Long Term	0			0
Total Liabilities	(1,104)	0	0	(1,104)

Common Stock	(12,500)			(12,500)
Retained Earnings	(12,746)			(12,746)
Total Liabilities and Stockholders’ Equity	(26,350)	0	0	(26,350)
	0	0	15	(15)
Panel B – Statement of Cash Flows
Cash Flows from Operating Activities
Net Income
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation Expense – Plant Assets
Decrease in Accounts Receivable		15
Gain on sale of equipment
Increase in Accounts Payable
Increase in Wages Payable
Increase in Income Taxes Payable
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Cash Paid for Acquisition of Plant Assets
Proceeds from sale of equipment
Net Cash Used for Investing Activities
Cash Flows from Financing Activities
Cash Receipt from Issuance of Common Stock
Proceeds from issuance of long-term debt
Cash Payment of Dividends
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Total		$ 15	$ –

Next, we record the purchase of equipment for cash by debiting the balance sheet line and crediting the corresponding line on the statement of cash flows (cash used for investing):

RUMBLE CORP
Spreadsheet for Statement of Cash Flows
Year Ended December 31, 20X1
Panel A – Balance Sheet	1/1/X1	Transaction Analysis		12/31/X1

Panel A – Balance Sheet	1/1/X1	Debit	Credit	12/31/X1
Cash	1,640			1,640
Accounts Receivable	1,750		15	1,735
Equipment	24,500	580		25,080
Accumulated Depreciation	(1,540)			(1,540)
Total Assets	26,350	580	15	26,915

Accounts Payable	(1,007)			(1,007)
Wages Payable	(55)			(55)
Income Taxes Payable	(42)			(42)
Note Payable – Long Term	0			0
Total Liabilities	(1,104)	0	0	(1,104)

Common Stock	(12,500)			(12,500)
Retained Earnings	(12,746)			(12,746)
Total Liabilities and Stockholders’ Equity	(26,350)	0	0	(26,350)
	0	580	15	565
Panel B – Statement of Cash Flows
Cash Flows from Operating Activities
Net Income
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation Expense – Plant Assets
Decrease in Accounts Receivable		15
Gain on sale of equipment
Increase in Accounts Payable
Increase in Wages Payable
Increase in Income Taxes Payable
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Cash Paid for Acquisition of Plant Assets			580
Proceeds from sale of equipment
Net Cash Used for Investing Activities
Cash Flows from Financing Activities
Cash Receipt from Issuance of Common Stock
Proceeds from issuance of long-term debt
Cash Payment of Dividends
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Total		$ 15	$ 580


Total debits/credits		$ 595	$ 595

Next, we know that we sold equipment and recorded a gain on the sale:

RUMBLE CORP
Spreadsheet for Statement of Cash Flows
Year Ended December 31, 20X1
Panel A – Balance Sheet	1/1/X1	Transaction Analysis		12/31/X1

Panel A – Balance Sheet	1/1/X1	Debit	Credit	12/31/X1
Cash	1,640			1,640
Accounts Receivable	1,750		15	1,735
Equipment	24,500	580	160	24,920
Accumulated Depreciation	(1,540)	100		(1,440)
Total Assets	26,350	680	175	26,855

Accounts Payable	(1,007)			(1,007)
Wages Payable	(55)			(55)
Income Taxes Payable	(42)			(42)
Note Payable – Long Term	0			0
Total Liabilities	(1,104)	0	0	(1,104)

Common Stock	(12,500)			(12,500)
Retained Earnings	(12,746)			(12,746)
Total Liabilities and Stockholders’ Equity	(26,350)	0	0	(26,350)
	0	680	175	505
Panel B – Statement of Cash Flows
Cash Flows from Operating Activities
Net Income
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation Expense – Plant Assets
Decrease in Accounts Receivable		15
Gain on sale of equipment			90
Increase in Accounts Payable
Increase in Wages Payable
Increase in Income Taxes Payable
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Cash Paid for Acquisition of Plant Assets			580
Proceeds from sale of equipment		150
Net Cash Used for Investing Activities
Cash Flows from Financing Activities
Cash Receipt from Issuance of Common Stock
Proceeds from issuance of long-term debt
Cash Payment of Dividends
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Total		$ 165	$ 670


Total debits/credits		$ 845	$ 845

Bit by bit, we are reconstructing the ending balance sheet by recording the changes to each account caused by cash transactions.

Accumulated depreciation is the next line on the balance sheet as we work our way from top to bottom. We record depreciation expense as a credit to accumulated depreciation (an increase) and a debit to depreciation expense on the statement of cash flows (which will be an add-back to net income).

RUMBLE CORP
Spreadsheet for Statement of Cash Flows
Year Ended December 31, 20X1
Panel A – Balance Sheet	1/1/X1	Transaction Analysis		12/31/X1

Panel A – Balance Sheet	1/1/X1	Debit	Credit	12/31/X1
Cash	1,640			1,640
Accounts Receivable	1,750		15	1,735
Equipment	24,500	580	60	25,020
Accumulated Depreciation	(1,540)		125	(1,665)
Total Assets	26,350	580	200	26,730

Accounts Payable	(1,007)			(1,007)
Wages Payable	(55)			(55)
Income Taxes Payable	(42)			(42)
Note Payable – Long Term	0			0
Total Liabilities	(1,104)	0	0	(1,104)

Common Stock	(12,500)			(12,500)
Retained Earnings	(12,746)			(12,746)
Total Liabilities and Stockholders’ Equity	(26,350)	0	0	(26,350)
	0	580	200	380
Panel B – Statement of Cash Flows
Cash Flows from Operating Activities
Net Income
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation Expense – Plant Assets		125
Decrease in Accounts Receivable		15
Gain on sale of equipment			90
Increase in Accounts Payable
Increase in Wages Payable
Increase in Income Taxes Payable
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Cash Paid for Acquisition of Plant Assets			580
Proceeds from sale of equipment		150
Net Cash Used for Investing Activities
Cash Flows from Financing Activities
Cash Receipt from Issuance of Common Stock
Proceeds from issuance of long-term debt
Cash Payment of Dividends
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Total		$ 290	$ 670


Total debits/credits		$ 870	$ 870

Then we adjust the current liability accounts:

RUMBLE CORP
Spreadsheet for Statement of Cash Flows
Year Ended December 31, 20X1
Panel A – Balance Sheet	1/1/X1	Transaction Analysis		12/31/X1

Panel A – Balance Sheet	1/1/X1	Debit	Credit	12/31/X1
Cash	1,640			1,640
Accounts Receivable	1,750		15	1,735
Equipment	24,500	580	60	25,020
Accumulated Depreciation	(1,540)		125	(1,665)
Total Assets	26,350	580	200	26,730

Accounts Payable	(1,007)		32	(1,039)
Wages Payable	(55)		80	(135)
Income Taxes Payable	(42)		18	(60)
Note Payable – Long Term	0			0
Total Liabilities	(1,104)	0	130	(1,234)

Common Stock	(12,500)			(12,500)
Retained Earnings	(12,746)			(12,746)
Total Liabilities and Stockholders’ Equity	(26,350)	0	130	(26,480)
	0	580	330	250
Panel B – Statement of Cash Flows
Cash Flows from Operating Activities
Net Income
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation Expense – Plant Assets		125
Decrease in Accounts Receivable		15
Gain on sale of equipment			90
Increase in Accounts Payable		32
Increase in Wages Payable		80
Increase in Income Taxes Payable		18
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Cash Paid for Acquisition of Plant Assets			580
Proceeds from sale of equipment		150
Net Cash Used for Investing Activities
Cash Flows from Financing Activities
Cash Receipt from Issuance of Common Stock
Proceeds from issuance of long-term debt
Cash Payment of Dividends
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Total		$ 420	$ 670


Total debits/credits		$ 1,000	$ 1,000

The long-term borrowing increased cash and was a financing activity:

RUMBLE CORP
Spreadsheet for Statement of Cash Flows
Year Ended December 31, 20X1
Panel A – Balance Sheet	1/1/X1	Transaction Analysis		12/31/X1

Panel A – Balance Sheet	1/1/X1	Debit	Credit	12/31/X1
Cash	1,640			1,640
Accounts Receivable	1,750		15	1,735
Equipment	24,500	580	60	25,020
Accumulated Depreciation	(1,540)		125	(1,665)
Total Assets	26,350	580	200	26,730

Accounts Payable	(1,007)		32	(1,039)
Wages Payable	(55)		80	(135)
Income Taxes Payable	(42)		18	(60)
Note Payable – Long Term	0		500	(500)
Total Liabilities	(1,104)	0	630	(1,734)

Common Stock	(12,500)			(12,500)
Retained Earnings	(12,746)			(12,746)
Total Liabilities and Stockholders’ Equity	(26,350)	0	630	(26,980)
	0	580	830	(250)
Panel B – Statement of Cash Flows
Cash Flows from Operating Activities
Net Income
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation Expense – Plant Assets		125
Decrease in Accounts Receivable		15
Gain on sale of equipment			90
Increase in Accounts Payable		32
Increase in Wages Payable		80
Increase in Income Taxes Payable		18
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Cash Paid for Acquisition of Plant Assets			580
Proceeds from sale of equipment		150
Net Cash Used for Investing Activities
Cash Flows from Financing Activities
Cash Receipt from Issuance of Common Stock
Proceeds from issuance of long-term debt		500
Cash Payment of Dividends
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Total		$ 920	$ 670


Total debits/credits		$ 1,500	$ 1,500

And issuing stock for cash also represents cash provided by a financing activity:

RUMBLE CORP
Spreadsheet for Statement of Cash Flows
Year Ended December 31, 20X1
Panel A – Balance Sheet	1/1/X1	Transaction Analysis		12/31/X1

Panel A – Balance Sheet	1/1/X1	Debit	Credit	12/31/X1
Cash	1,640			1,640
Accounts Receivable	1,750		15	1,735
Equipment	24,500	580	60	25,020
Accumulated Depreciation	(1,540)		125	(1,665)
Total Assets	26,350	580	200	26,730

Accounts Payable	(1,007)		32	(1,039)
Wages Payable	(55)		80	(135)
Income Taxes Payable	(42)		18	(60)
Note Payable – Long Term	0		500	(500)
Total Liabilities	(1,104)	0	630	(1,734)

Common Stock	(12,500)		1,000	(13,500)
Retained Earnings	(12,746)			(12,746)
Total Liabilities and Stockholders’ Equity	(26,350)	0	1,630	(27,980)
	0	580	1,830	(1,250)
Panel B – Statement of Cash Flows
Cash Flows from Operating Activities
Net Income
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation Expense – Plant Assets		125
Decrease in Accounts Receivable		15
Gain on sale of equipment			90
Increase in Accounts Payable		32
Increase in Wages Payable		80
Increase in Income Taxes Payable		18
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Cash Paid for Acquisition of Plant Assets			580
Proceeds from sale of equipment		150
Net Cash Used for Investing Activities
Cash Flows from Financing Activities
Cash Receipt from Issuance of Common Stock		1,000
Proceeds from issuance of long-term debt		500
Cash Payment of Dividends
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Total		$ 1,920	$ 670


Total debits/credits		$ 2,500	$ 2,500

We now post net income to retained earnings:

RUMBLE CORP
Spreadsheet for Statement of Cash Flows
Year Ended December 31, 20X1
Panel A – Balance Sheet	1/1/X1	Transaction Analysis		12/31/X1

Panel A – Balance Sheet	1/1/X1	Debit	Credit	12/31/X1
Cash	1,640			1,640
Accounts Receivable	1,750		15	1,735
Equipment	24,500	580	60	25,020
Accumulated Depreciation	(1,540)		125	(1,665)
Total Assets	26,350	580	200	26,730

Accounts Payable	(1,007)		32	(1,039)
Wages Payable	(55)		80	(135)
Income Taxes Payable	(42)		18	(60)
Note Payable – Long Term	0		500	(500)
Total Liabilities	(1,104)	0	630	(1,734)

Common Stock	(12,500)		1,000	(13,500)
Retained Earnings	(12,746)		2,610	(15,356)
Total Liabilities and Stockholders’ Equity	(26,350)	0	4,240	(30,590)
	0	580	4,440	(3,860)
Panel B – Statement of Cash Flows
Cash Flows from Operating Activities
Net Income		2,610
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation Expense – Plant Assets		125
Decrease in Accounts Receivable		15
Gain on sale of equipment			90
Increase in Accounts Payable		32
Increase in Wages Payable		80
Increase in Income Taxes Payable		18
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Cash Paid for Acquisition of Plant Assets			580
Proceeds from sale of equipment		150
Net Cash Used for Investing Activities
Cash Flows from Financing Activities
Cash Receipt from Issuance of Common Stock		1,000
Proceeds from issuance of long-term debt		500
Cash Payment of Dividends
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Total		$ 4,530	$ 670


Total debits/credits		$ 5,110	$ 5,110

Dividends reduce retained earnings:

RUMBLE CORP
Spreadsheet for Statement of Cash Flows
Year Ended December 31, 20X1
Panel A – Balance Sheet	1/1/X1	Transaction Analysis		12/31/X1

Panel A – Balance Sheet	1/1/X1	Debit	Credit	12/31/X1
Cash	1,640			1,640
Accounts Receivable	1,750		15	1,735
Equipment	24,500	580	60	25,020
Accumulated Depreciation	(1,540)		125	(1,665)
Total Assets	26,350	580	200	26,730

Accounts Payable	(1,007)		32	(1,039)
Wages Payable	(55)		80	(135)
Income Taxes Payable	(42)		18	(60)
Note Payable – Long Term	0		500	(500)
Total Liabilities	(1,104)	0	630	(1,734)

Common Stock	(12,500)		1,000	(13,500)
Retained Earnings	(12,746)	460	2,610	(14,896)
Total Liabilities and Stockholders’ Equity	(26,350)	460	4,240	(30,130)
	0	1,040	4,440	(3,400)
Panel B – Statement of Cash Flows
Cash Flows from Operating Activities
Net Income		2,610
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation Expense – Plant Assets		125
Decrease in Accounts Receivable		15
Gain on sale of equipment			90
Increase in Accounts Payable		32
Increase in Wages Payable		80
Increase in Income Taxes Payable		18
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Cash Paid for Acquisition of Plant Assets			580
Proceeds from sale of equipment		150
Net Cash Used for Investing Activities
Cash Flows from Financing Activities
Cash Receipt from Issuance of Common Stock		1,000
Proceeds from issuance of long-term debt		500
Cash Payment of Dividends			460
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash
Total		$ 4,530	$ 1,130


Total debits/credits		$ 5,570	$ 5,570

And the final step is to post the change in cash:

RUMBLE CORP
Spreadsheet for Statement of Cash Flows
Year Ended December 31, 20X1
Panel A – Balance Sheet	1/1/X1	Transaction Analysis		12/31/X1

Panel A – Balance Sheet	1/1/X1	Debit	Credit	12/31/X1
Cash	1,640	3,400		5,040
Accounts Receivable	1,750		15	1,735
Equipment	24,500	580	60	25,020
Accumulated Depreciation	(1,540)		125	(1,665)
Total Assets	26,350	3,980	200	30,130

Accounts Payable	(1,007)		32	(1,039)
Wages Payable	(55)		80	(135)
Income Taxes Payable	(42)		18	(60)
Note Payable – Long Term	0		500	(500)
Total Liabilities	(1,104)	0	630	(1,734)

Common Stock	(12,500)		1,000	(13,500)
Retained Earnings	(12,746)	460	2,610	(14,896)
Total Liabilities and Stockholders’ Equity	(26,350)	460	4,240	(30,130)
	0	4,440	4,440	0
Panel B – Statement of Cash Flows
Cash Flows from Operating Activities
Net Income		2,610
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation Expense – Plant Assets		125
Decrease in Accounts Receivable		15
Gain on sale of equipment			90
Increase in Accounts Payable		32
Increase in Wages Payable		80
Increase in Income Taxes Payable		18
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Cash Paid for Acquisition of Plant Assets			580
Proceeds from sale of equipment		150
Net Cash Used for Investing Activities
Cash Flows from Financing Activities
Cash Receipt from Issuance of Common Stock		1,000
Proceeds from issuance of long-term debt		500
Cash Payment of Dividends			460
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash			3,400
Total		$ 4,530	$ 4,530


Total debits/credits		$ 8,970	$ 8,970

And now the numbers are all in place, everything is accounted for, and all we have to do is place the numbers into the proper format along with some supplemental information we’ll have to get from the general ledger:

Subcategory, Cash flows from financing activities

Rumble Corp.
Statement of Cash Flows
for the year ended 12/31/x1
Description	Amount	Total
	In millions
Subcategory, Cash flows from operating activities
Net income		$ 2,610
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	125
Decrease in Accounts Receivable	15
Gain on sale of equipment	(90)
Increase in Accounts Payable	32
Increase in income taxes payable	80
Increase in other liabilities	18
Total adjustments		180
Net cash from operating activities	Single Line	Single Line $2,790

Subcategory, Cash flows from investing activities
Purchase of property, plant, and equipment	(580)
Proceeds from sale of equipment	150
Net cash used in investing activities	Single Line	Single Line (430)

Proceeds from issuance of common stock	1,000
Proceeds from issuance of long-term debt	500
Dividends paid	(460)
Net cash used in financing activities	Single Line	Single Line 1,040

Net increase in cash and cash equivalents		3,400
Cash and cash equivalents at beginning of period		1,640
Cash and cash equivalents at end of period		Single Line $5,040 Double Line

Supplemental information:
Cash paid for interest		$ 310
Cash paid for income taxes		$ 1,700

Congratulations! You’ve now worked all the way through the worksheet and created the Statement of Cash Flows.

practice question

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Module 14: Statement of Cash Flows