indirect method of cash flow statement directions

Instructions for a Cash Flows Statement-Indirect Method

MJC Revised 4-2012

Love Thy Pets Inc,.

Statement of Cash Flows

For the Year Ended, December 31, 2011

Cash flows from operating activities:

Net Income $XX,XXX

Adjustments to reconcile net income to net cash provided by

operating activities

Depreciation $XX,XXX

Amortization XX,XXX

Loss on disposal of store equipment XX,XXX

Gain on disposal of office equipment (XX,XXX)

Increase in accounts receivable (X,XXX)

Decrease in merchandise inventory XXX

Increase in prepaid expenses (X,XXX)

Decrease in accounts payable (XX,XXX)

Increase in accrued expenses payable X,XXX X,XXX

Net cash provided by operating activities XX,XXX

Cash flows from investing activities:

Purchase of equipment (XX,XXX)

Sale of equipment XX,XXX

Purchase of investment (X,XXX)

Sale of investment X,XXX

Net cash used by investing activities XX,XXX

Cash flows from financing activities:

Issuance of common stock XX,XXX

Issuance of note or bonds payable XX,XXX

Payment of dividends (X,XXX)

Redemption of bonds (X,XXX)

Purchase of treasury stock (X,XXX)

Net cash provided by financing activities XX,XXX

Net increase (decrease) in cash X,XXX

Cash at beginning of period XX,XXX

Cash at end of period $XX,XXX


MJC Revised 4-2012

Contents Operating section of cash flows statement: ................................................................................ 3

Investing section of the cash flows statement: ............................................................................ 4

Financing section of the cash flows statement:........................................................................... 4

End section of the cash flows statement: .................................................................................... 5


MJC Revised 4-2012

Step-by-Step Instructions

Start with the three-line header, which included the name of the corporation, the title of the

statement, and the period for which the statement is being prepared.

Operating section of cash flows statement:

1. On the first line of the body of the statement in the far left hand column, place the title

“Cash flows from operating activities.” Note: this is a heading and no dollar amount is

placed in the columns to the right.

2. Next place “Net income” which you will get from the bottom of your income statement.

Place the amount in the right hand column.

3. The next line is a titled, “Adjustments to reconcile net income to net cash provided by

operating activities.” Note: this is a heading and no dollar amount is placed in the column

to the right.

4. Always start by listing any depreciation, amortization, losses on disposal. These items

come from the income statement and will always be positive because they are added back

to net income. Gains on disposal are (negative) because they are subtracted from net

income. The total proceeds (cash received for the sale of assets) from the sale of assets

will be recorded in the investing section of the cash flow statement. Always start by listing any depreciation, amortization, and losses on disposal these items which come from the income statement will always be positive because they are added back to net income. Gains on disposal are (negative) because they are subtracted from net income. The total proceeds (cash received for the sale of assets) from the sale of assets will be recorded in the investing section of the cash flow statement. The amounts for depreciation, amortization and losses/gains on disposal are placed in the middle column. Remember if the depreciation is included in a larger item on the income statement it can be deduced by creating a t-account. Take from the balance sheet the beginning balance of accumulated depreciation subtract any accumulated depreciation for the disposal of an asset and then subtract that amount from the ending balance to get the amount of depreciation for the current year.

5. Next on the list is current assets, these items can either increase or decrease in amount over the year. The rule is simple for assets (subtract) any increases and add back any decrease in these items. Current assets are: Accounts receivable, Merchandise inventory, and prepaid expenses. Cash is not included in this list because it will be used at the end of the statement. The amounts are placed in the middle column.


MJC Revised 4-2012

6. Next on the list is current liabilities, again these items can either increase or decrease in amount over the year. The rule for the class of liabilities is also simple (subtract) any decreases and add any increases back. Current liabilities are: account payable, income tax payable, interest payable and any other payable account that is listed as a current liability. The amounts are placed in the middle column.

7. Total up all of the pluses and minuses values and place the total on the same line as the last liability with the amount in the far right hand column.

8. Depending on where the amount is positive or negative either add or subtract the total from the net income to get “Net cash provided by operating activities.”

Investing section of the cash flows statement:

1. This section starts with the section header “Cash flows from investing activities” placed

in the left column.

2. On the next few lines place the titles for any of these events which occurred during the

fiscal period:

Plus Minus

Sale of equipment Purchase of equipment

Sale of investment Purchase of investment

Place the dollar amounts in the middle column. Any items in the minus column of the

above chart will have brackets surrounding their dollar amounts.

3. Finally, for this section total the entire sales minus all of the purchases to get the results

of this section. Place the title “Net cash provided by investing activities” if the result is

positive or if the result is negative use the title “Net cash used by investing activities.”

The resulting dollar amount is place in the right column.

Financing section of the cash flows statement:

1. Start this section with the header “Cash flows from financing activities” in the left

column.

2. Place any of these item titles in this section if the events occurred during the fiscal period.

Plus Minus

Sale of stock Purchase of Treasury Stock

Sale of bonds or notes Redemption of bonds or notes

Payment of dividends


MJC Revised 4-2012

3. Finally, for this section total all of the sales minus all of the purchases, redemptions, and

payments to get the results of this section. Use the title “Net cash provided by financing

activities” if the result is positive or if the result is negative use the title “Net cash used by

financing activities.” Place the title in the left column. The resulting dollar amount is

place in the right column.

End section of the cash flows statement:

1. Start this section by placing the title “Net increase (decrease) in cash” in the left column.

Total the results from the right column, which includes dollar amounts from operating

activities, investing activities and financing activities.

2. Now place the title “Cash at the beginning of the period” in the left column. This dollar

amount comes from the balance sheet at the end of the prior year.

3. Finally, either add (positive dollar amount) or subtract (negative amount) from the

beginning of the period cash to get cash at end for the period. Place the title “Cash at end

of period” in the left column.

indirect method of cash flow statement directions

Documents