Final answer:
To prepare the statement of cash flows using the indirect method, start with the net income and adjust it for non-cash expenses and changes in working capital. Example statement provided.
Step-by-step explanation:
Statement of Cash FlowsThe statement of cash flows is a financial statement that summarizes the cash flows of a company during a specific period of time. It provides information about the operating, investing, and financing activities of the company, and helps users understand how the company generated and used cash during the period
To prepare the statement of cash flows using the indirect method, you need to start with the net income from the income statement and adjust it for non-cash expenses and changes in working capital items.Here is an example of how the statement of cash flows for the current year ended December 31 could be prepared using the indirect method:
XYZ Company
Statement of Cash Flows
For the Year Ended December 31
Cash Flows from Operating Activities
Net Income $XXX
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization $XXX
Changes in working capital:
Increase in accounts receivable ($XXX)
Increase in inventory ($XXX)
Increase in accounts payable $XXX
Net Cash Provided by Operating Activities $XXX
Cash Flows from Investing Activities
Cash received from sale of equipment $XXX
Cash paid for purchase of investments ($XXX)
Net Cash Provided by Investing Activities $XXX
Cash Flows from Financing Activities
Cash received from issuance of common stock $XXX
Cash paid for dividends ($XXX)
Net Cash Provided by Financing Activities $XXX
Net Increase in Cash and Cash Equivalents $XXX
Cash and Cash Equivalents, Beginning of Year $XXX
Cash and Cash Equivalents, End of Year $XXX
This is just an example and the actual statement of cash flows will depend on the specific transactions and events of the company.