Managerial Accounting: "Chapter 12, Section 3: 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', the main one being depreciation. There are four steps used to create a cash flow statement.