Four Key Steps to Preparing the Statement of Cash Flows
The statement of cash flows is based on cash only, and when used for accrual accounting based companies, adjustments must be made to convert accrual basis information to a cash basis. In addition to reconciling the three statement activities (the income statement, balance sheet, and statement of owners' equity), cash flows need to have certain adjustments made to them. One of the main ones is adjusting the statement for non-cash transactions like depreciation. There are four steps to creating a cash flow statement.