TIps for Development of The Statement Of Cash Flows

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Cash inflows and outflows are determined by analyzing all balance sheet accounts other than the cash and cash equivalent accounts.  The following account balance changes indicate cash inflows:

1. Decreases in Assets (e.g., the sale of land for cash)
2. Increases in Liabilities (e.g., the issuance of long-term bonds)
3. Increase in Stockholders' equity (e.g., the sale of commons stock)

Cash outflows are indicated by the following account balance changes:

1. Increases in Assets (e.g., the purchase of a building for cash)
2. Decreases in Liabilities (e.g., retirement of long-term debt)
3. Decreases in Stockholders' equity (e.g., the payment of a cash dividend)

As an Accountant it is important to remember that three techniques may be used to prepare the statement of cash flows: 

1. The visual method
2. The T-account method, and
3. The worksheet method

Keep in mind that the visual method can be used only when the financial information is not complicated.  When the financial information is complicated, either the T-account method or the worksheet method must be used.  The example above is a visual method.  

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