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In order to preparea cashflowstatement, you will need to reference two balance sheets, a complete income statement, and know some additional information. This first step is to use the two balance sheets to calculate the change in each account by subtracting the beginning balance from the ending balance.

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  • How do you prepare a statement of cash flows?

  • In order to prepare a statement of cash flows, you have to look back at the comparative balance sheets for XYZ company. From the two years of balance sheet data and some income statement data, you build your cash flows statement.

  • What is the indirect method of preparing a statement of cash flow?

  • The indirect method of preparing a statement of cash flows begins with the net profit from the income statement, which is then adjusted for non-cash items, such as depreciation.

  • Why is the cash flow statement important?

  • The cash flow statement removes accounting methods such as accruals, depreciation and amortization. Therefore, it provides a more accurate statement of how cash is flowing in and out of the company. This allows investors to get a clear picture of the company鈥檚 earning power and operating success.

  • What is the general layout of a statement of cash flows?

  • The general layout of an indirect method statement of cash flows is shown below, along with an explanation of the source of the information in the statement. The sources of information appearing in the table can be used to prepare a cash flow statement. A less commonly-used format for the statement of cash flows is the direct method.