The balance sheet and income statement are prepared using the accrual basis of accounting. The statement of cash flows is prepared using information from accrual-basis statements to tell what cash was received and how cash was spent. The statement of cash flows classifies business transactions as operating activities, investing activities, or financing activities. Cash management is crucial to business survival. Just as you might make enough on an annual basis to pay all your bills, you need to know if you will have enough in your checking account when your school tax bill is due. The timing of cash flows is critical for all businesses to survive.
Completing this unit should take you approximately 6 hours.
Operating activities on the statement of cash flows stem from a company's day-to-day operations. These activities include making sales to customers and paying vendors and employees. The operating activities section of the statement of cash flows can be prepared using the direct or indirect method.
Read this chapter, which shows how to record cash flow from operating activities on the statement of cash flows. The chapter also provides an overview of cash flows from operating activities and steps in preparing a statement of cash flows, which will be covered in more detail in the resources that follow.
This article shows the two different methods of preparing a statement of cash flows: direct and indirect.
This video provides an overview of the preparation of the cash flow statement using the indirect method.
Watch this video to learn how to complete the operating activities section of the cash flow statement using the indirect method.
Watch this video to learn how to complete the financing activities section of the cash flow statement using the indirect method.
Watch this video to learn how to complete the investing activities section of the cash flow statement using the indirect method.
This exercise quizzes you on your knowledge of the statement of cash flow and its components.
Take this assessment to see how well you understood this unit.