WILEY

IFRS EDITION
Prepared by
Coby Harmon
University of California, Santa Barbara
13-1 Westmont College
 PREVIEW OF CHAPTER 13

Financial Accounting
IFRS 3rd Edition
Weygandt ● Kimmel ● Kieso
13-2
 CHAPTER

13 Statement of Cash
Flows
LEARNING OBJECTIVES
After studying this chapter, you should be able to:

1. Indicate the usefulness of the statement of cash flows.

2. Distinguish among operating, investing, and financing activities.

3. Prepare a statement of cash flows using the indirect method.

4. Analyze the statement of cash flows.

13-3
 Statement of Cash Flows: Usefulness
and Format
Learning Objective 1
Indicate the usefulness of
Provides information to help assess: the statement of cash
flows.
1. Entity’s ability to generate future cash flows.

2. Entity’s ability to pay dividends and meet obligations.

3. Reasons for difference between net income and net cash

provided (used) by operating activities.

4. Cash investing and financing transactions during the

period.

13-4 LO 1
 Learning Objective
Classification of Cash Flows 2
Distinguish among
operating, investing, and
financing activities.

Operating Investing Financing

Activities Activities Activities

Income Changes in Changes in

Statement Items Investments Non-current
and Non- Liabilities and
current Equity
Assets

13-5 LO 2
 Classification of Cash Flows

Operating activities—Income statement items

Cash inflows: Illustration 13-1
Typical receipt and payment
classifications
From sale of goods or services.
From interest received and dividends received.
Cash outflows:
To suppliers for inventory.
To employees for wages.
To government for taxes.
To lenders for interest.
To others for expenses.

13-6 LO 2
 Classification of Cash Flows

Investing activities—Changes in investments and non-

current assets Illustration 13-1
Typical receipt and payment
Cash inflows: classifications

From sale of property, plant, and equipment.

From sale of investments in debt or equity securities of
other entities.
From collection of principal on loans to other entities.
Cash outflows:
To purchase property, plant, and equipment.
To purchase investments in debt or equity securities of
other entities.
To make loans to other entities.
13-7 LO 2
 Classification of Cash Flows

Financing activities—Changes in non-current

liabilities and equity Illustration 13-1
Typical receipt and payment
Cash inflows: classifications

From sale of ordinary shares.

From issuance of long-debt (bonds and notes).
Cash outflows:
To shareholders as dividends.
To redeem long-term debt or reacquire
ordinary shares (treasury shares).

13-8 LO 2
 Significant Non-Cash Activities

1. Direct issuance of ordinary shares to purchase assets.

2. Conversion of bonds into ordinary shares.
3. Issuance of debt to purchase assets.
4. Exchanges of plant assets.

Companies report non-cash activities in either a

 separate schedule (bottom of the statement) or
 separate note to the financial statements.

13-9 LO 2
 Accounting Across the Organization
Net What?
Net income is not the same as net cash provided by operating
activities. Below are some results from recent annual reports
(currencies in millions). Note the wide disparity among these
companies, all of which engage in retail merchandising.

13-10 LO 2
 Format of the Statement of Cash Flows

Order of Presentation:
Direct Method
1. Operating activities.
Indirect Method
2. Investing activities.
3. Financing activities.

13-11 LO 2
 Illustration 13-3
Format of statement of cash flows

13-12 LO 2
 > DO IT!
Illustration: Classify each of these transactions by type of cash
flow activity.
1. Issued 100,000 HK$50 par value ordinary
shares for HK$8,000,000 cash.
2. Borrowed HK$2,000,000 from Castle Bank,
signing a 5-year note bearing 8% interest.
3. Purchased two semi-trailer trucks for
HK$1,700,000 cash.
4. Paid employees HK$120,000 for salaries and
wages.
5. Collected HK$200,000 cash for services
performed.
13-13 LO 2
 Preparing the Statement of Cash Flows

Three sources of information:

1. Comparative statements of financial position

2. Current income statement

3. Additional information

13-14 LO 2
 Preparing the Statement of Cash Flows

Three Major Steps:

Illustration 13-4
Three major steps in preparing
the statement of cash flows

13-15 LO 2
 Preparing the Statement of Cash Flows

Three Major Steps:

Illustration 13-4
Three major steps in preparing
the statement of cash flows

13-16 LO 2
 Preparing the Statement of Cash Flows

Three Major Steps:

Illustration 13-4
Three major steps in preparing
the statement of cash flows

13-17 LO 2
 Indirect And Direct Methods

Companies favor the indirect method for two reasons:

1. Easier and less costly to prepare.

2. Focuses on differences between net income and net cash

flow from operating activities.

13-18 LO 2
 Learning Objective 3
Statement of Cash Flows: Prepare a statement of
cash flows using the
—Indirect Method indirect method.

Illustration 13-5
Comparative statements of financial position, income statement,
and additional information for Computer Services Company
13-19 LO 3
Illustration 13-5
Comparative statements of financial position, income statement,
and additional information for Computer Services Company

13-20 LO 3
 Change in
2017 2016 Account Balance

Illustration 13-5
Additional information for 2017:
1. Depreciation expense was comprised of €6,000 for building and €3,000 for
equipment.
2. The company sold equipment with a book value of €7,000 (cost €8,000, less
accumulated depreciation €1,000) for €4,000 cash.
3. Issued €110,000 of long-term bonds in direct exchange for land.
4. A building costing €120,000 was purchased for cash. Equipment costing €25,000
was also purchased for cash.
5. Issued ordinary shares for €20,000 cash.
6. The company declared and paid a €29,000 cash dividend.
13-21 LO 3
 Step 1: Operating Activities

DETERMINE NET CASH PROVIDED/USED BY

OPERATING ACTIVITIES BY CONVERTING NET
INCOME FROM ACCRUAL BASIS TO CASH
BASIS.
Common adjustments to Net Income (Loss):
 Add back non-cash expenses (depreciation,
amortization, or depletion expense).
 Deduct gains and add losses.
 Analyze changes to non-cash current asset and current
liability accounts.
13-22 LO 3
 Step 1: Operating Activities

Depreciation Expense
Although depreciation expense reduces net income, it does
not reduce cash. The company must add it back to net
income.
Illustration 13-7

Cash flows from operating activities:

Net income € 145,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 9,000
Net cash provided by operating activities € 154,000

13-23 LO 3
 Step 1: Operating Activities

LOSS ON DISPOSAL OF PLANT ASSETS

Companies should report cash received from the sale
(disposal) of plant assets in the investing activities section.
Because of this,

 any loss on sale is added to net income in the

operating section.

 any gain on sale is deducted from net income in the

operating section.

13-24 LO 3
 Step 1: Operating Activities

LOSS ON DISPOSAL OF PLANT ASSETS

Illustration 13-8

Cash flows from operating activities:

Net income € 145,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 9,000
Loss on disposal of plant assets 3,000
Net cash provided by operating activities € 157,000

13-25 LO 3
 Step 1: Operating Activities

CHANGES TO NON-CASH CURRENT ASSET

ACCOUNTS
When the Accounts Receivable balance decreases, cash
receipts are higher than revenue earned under the accrual
basis.
Illustration 13-9
Accounts Receivable

1/1/017 Balance 30,000 Receipts from customers 517,000

Sales revenue 507,000

12/31/17 Balance 20,000

Company adds to net income the amount of the decrease in

accounts receivable.
13-26 LO 3
 Step 1: Operating Activities

CHANGES TO NON-CASH CURRENT ASSET

ACCOUNTS
Illustration 13-10

Cash flows from operating activities:

Net income € 145,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 9,000
Loss on disposal of plant assets 3,000
Decrease in accounts receivable 10,000
Net cash provided by operating activities € 167,000

13-27 LO 3
 Step 1: Operating Activities

CHANGES TO NON-CASH CURRENT ASSET

ACCOUNTS
When the Inventory balance increases, the cost of
merchandise purchased exceeds the cost of goods sold.

Inventory

1/1/17 Balance 10,000 Cost of goods sold 150,000

Purchases 155,000

12/31/17 Balance 15,000

Cost of goods sold does not reflect cash payments made for
merchandise. The company deducts from net income this
inventory increase.
13-28 LO 3
 Step 1: Operating Activities

CHANGES TO NON-CASH CURRENT ASSET

ACCOUNTS
Illustration 13-10
Cash flows from operating activities:
Net income € 145,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 9,000
Loss on disposal of plant assets 3,000
Decrease in accounts receivable 10,000
Increase in inventory (5,000)
Net cash provided by operating activities € 162,000

13-29 LO 3
 Step 1: Operating Activities

CHANGES TO NON-CASH CURRENT ASSET

ACCOUNTS
When the Prepaid Expense balance increases, cash paid for
expenses is higher than expenses reported on an accrual
basis. The company deducts the increase from net income to
arrive at net cash provided by operating activities.

If prepaid expenses decrease, reported expenses are higher

than the expenses paid.

13-30 LO 3
 Step 1: Operating Activities

CHANGES TO NON-CASH CURRENT ASSET

ACCOUNTS
Illustration 13-10

Cash flows from operating activities:

Net income € 145,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 9,000
Loss on disposal of plant assets 3,000
Decrease in accounts receivable 10,000
Increase in inventory (5,000)
Increase in prepaid expenses (4,000)
Net cash provided by operating activities € 158,000

13-31 LO 3
 Step 1: Operating Activities

CHANGES TO NON-CASH CURRENT LIABILITY

ACCOUNTS
When Accounts Payable increases, the company received more
in goods than it actually paid for. The increase is added to net
income to determine net cash provided by operating activities.

When Income Taxes Payable decreases, the income tax

expense reported on the income statement was less than the
amount of taxes paid during the period. The decrease is
subtracted from net income to determine net cash provided by
operating activities.

13-32 LO 3
 Step 1: Operating Activities

CHANGES TO NON-CASH CURRENT LIABILITY

ACCOUNTS Illustration 13-11

Cash flows from operating activities:

Net income € 145,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 9,000
Loss on disposal of plant assets 3,000
Decrease in accounts receivable 10,000
Increase in inventory (5,000)
Increase in prepaid expenses (4,000)
Increase in accounts payable 16,000
Decrease in income taxes payable (2,000)
Net cash provided by operating activities € 172,000
13-33
LO 3
 Step 1: Operating Activities

Summary of Conversion to Net Cash Provided

by Operating Activities—Indirect Method

Illustration 13-12
Adjustments required to convert net income to net cash provided by operating activities
13-34 LO 3
 Ethics Insight
Cash Flow Isn’t Always What It Seems
Some managers have taken actions that artificially increase cash flow
from operating activities. They do this by moving negative amounts out of
the operating section and into the investing or financing section. For
example, WorldCom, Inc. (USA) disclosed that it had improperly
capitalized expenses: It had moved $3.8 billion of cash outflows from the
“Cash from operating activities” section of the statement of cash flows to
the “Investing activities” section, thereby greatly enhancing cash provided
by operating activities. Similarly, Dynegy, Inc. (USA) restated its
statement of cash flows because it had improperly included in operating
activities, instead of in financing activities, $300 million from natural gas
trading. The restatement resulted in a drop of 37% in cash flow from
operating activities.
Source: Henny Sender, “Sadly, These Days Even Cash Flow Isn’t Always What It
Seems to Be,” Wall Street Journal (May 8, 2002).

13-35 LO 3
 Step 2: Investing and Financing Activities

Company purchased land of €110,000 by issuing long-term

bonds. This is a significant non-cash investing and financing
activity that merits disclosure in a separate schedule.

Land
1/1/17 Balance 20,000
Issued bonds 110,000
12/31/17 Balance 130,000

Bonds Payable
1/1/17 Balance 20,000
For land 110,000
12/31/17 Balance 130,000

13-36 LO 3
 Step 2: Investing and Financing Activities
Partial statement Illustration 13-14

Net cash provided by operating activities 172,000

Cash flows from investing activities:
Purchase of building (120,000)
Purchase of equipment (25,000)
Disposal of plant assets 4,000
Net cash used by investing activities (141,000)
Cash flows from financing activities:
Issuance of ordinary shares 20,000
Payment of cash dividends (29,000)
Net cash used by financing activities (9,000)
Net increase in cash 22,000
Cash at beginning of period 33,000
Cash at end of period € 55,000

Disclosure: Issuance of bonds to purchase land € 110,000

13-37 LO 3
 Step 2: Investing and Financing Activities

From the additional information, the company acquired an

office building for €120,000 cash. This is a cash outflow
reported in the investing section.

Building

1/1/17 Balance 40,000

Office building 120,000

12/31/17 Balance 160,000

13-38 LO 3
 Step 2: Investing and Financing Activities
Partial statement Illustration 13-14

Net cash provided by operating activities 172,000

Cash flows from investing activities:
Purchase of building (120,000)
Purchase of equipment (25,000)
Disposal of plant assets 4,000
Net cash used by investing activities (141,000)
Cash flows from financing activities:
Issuance of ordinary shares 20,000
Payment of cash dividends (29,000)
Net cash used by financing activities (9,000)
Net increase in cash 22,000
Cash at beginning of period 33,000
Cash at end of period € 55,000

Disclosure: Issuance of bonds to purchase land € 110,000

13-39 LO 3
 Step 2: Investing and Financing Activities

The additional information explains that the equipment increase

resulted from two transactions: (1) a purchase of equipment of
€25,000, and (2) the sale for €4,000 of equipment costing €8,000.
Illustration 13-13

Equipment

1/1/17 Balance 10,000 Cost of equipment sold 8,000

Purchase 25,000

12/31/17 Balance 27,000

Cash 4,000
Journal
Accumulated Depreciation 1,000
Entry
Loss on Disposal of Plant Assets 3,000
Equipment 8,000

13-40 LO 3
 Illustration 13-14
Statement of Cash flows from operating activities:
Net income € 145,000
Cash Flows Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 9,000
Loss on disposal of plant assets 3,000
Decrease in accounts receivable 10,000
Increase in inventory (5,000)
Increase in prepaid expenses (4,000)
Indirect Increase in accounts payable 16,000
Method Decrease in income taxes payable (2,000)
Net cash provided by operating activities 172,000
Cash flows from investing activities:
Purchase of building (120,000)
Purchase of equipment (25,000)
Disposal of plant assets 4,000
Net cash used by investing activities (141,000)
Cash flows from financing activities:
Issuance of ordinary shares 20,000
Payment of cash dividends (29,000)
Net cash used by financing activities (9,000)
Net increase in cash 22,000
Cash at beginning of period 33,000
Cash at end of period € 55,000
13-41
 Step 2: Investing and Financing Activities

The increase in ordinary shares resulted from the issuance of

new shares.

Share Capital - Ordinary

1/1/17 Balance 50,000

Shares sold 20,000

12/31/17 Balance 70,000

13-42 LO 3
 Step 2: Investing and Financing Activities
Illustration 13-14
Partial statement
Net cash provided by operating activities 172,000
Cash flows from investing activities:
Purchase of building (120,000)
Purchase of equipment (25,000)
Disposal of plant assets 4,000
Net cash used by investing activities (141,000)
Cash flows from financing activities:
Issuance of ordinary shares 20,000
Payment of cash dividends (29,000)
Net cash used by financing activities (9,000)
Net increase in cash 22,000
Cash at beginning of period 33,000
Cash at end of period € 55,000

Disclosure: Issuance of bonds to purchase land € 110,000

13-43 LO 3
 Step 2: Investing and Financing Activities

Retained earnings increased €116,000 during the year. This

increase can be explained by two factors: (1) Net income of
€145,000 increased retained earnings, and (2) Dividends of
€29,000 decreased retained earnings.

Retained Earnings

1/1/17 Balance 48,000

Dividends 29,000 Net income 145,000

12/31/17 Balance 164,000

13-44 LO 3
 Illustration 13-14
Cash flows from operating activities:
Statement of Net income € 145,000
Cash Flows Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 9,000
Loss on disposal of plant assets 3,000
Decrease in accounts receivable 10,000
Increase in inventory (5,000)
Increase in prepaid expenses (4,000)
Indirect Increase in accounts payable 16,000
Decrease in income taxes payable (2,000)
Method Net cash provided by operating activities 172,000
Cash flows from investing activities:
Purchase of building (120,000)
Purchase of equipment (25,000)
Disposal of plant assets 4,000
Net cash used by investing activities (141,000)
Cash flows from financing activities:
Issuance of ordinary shares 20,000
Payment of cash dividends (29,000)
Net cash used by financing activities (9,000)
Net increase in cash 22,000
Cash at beginning of period 33,000
Cash at end of period € 55,000
13-45
LO 3
 ANATOMY OF A FRAUD

For more than a decade, the top executives at the Italian dairy products company
Parmalat engaged in multiple frauds that overstated cash and other assets by more
than $1 billion while understating liabilities by between $8 and $12 billion. Much of the
fraud involved creating fictitious sources and uses of cash. Some of these activities
incorporated sophisticated financial transactions with subsidiaries created with the
help of large international financial institutions. However, much of the fraud employed
very basic, even sloppy, forgery of documents. For example, when outside auditors
requested confirmation of bank accounts (such as a fake $4.8 billion account in the
Cayman Islands), documents were created on scanners, with signatures that were
cut and pasted from other documents. These were then passed through a fax
machine numerous times to make them look real (if difficult to read). Similarly,
fictitious bills were created in order to divert funds to other businesses owned by the
Tanzi family (who controlled Parmalat).

Total take: Billions of dollars

The Missing Control

Independent internal verification. Internal auditors at the company should have
independently verified bank accounts and major transfers of cash to outside
companies that were controlled by the Tanzi family.

13-46 LO 3
 Step 3: Net Change in Cash Illustration 13-5

COMPARE THE NET CHANGE IN CASH ON THE STATEMENT OF CASH

FLOWS WITH THE CHANGE IN THE CASH ACCOUNT REPORTED ON
THE STATEMENT OF FINANCIAL POSITIONS TO MAKE SURE THE
AMOUNTS AGREE.

13-47
LO 3
 Using Cash Flow to Evaluate a
Company
Learning Objective
Free cash flow describes the cash 4
Analyze the statement of
cash flows.
remaining from operations after adjustment
for capital expenditures and dividends.

Illustration 13-15
Free cash flow

13-48 LO 4
 Free Cash Flow Illustration 13-16
Anheuser-Busch InBev cash
flow information ($ in millions)

Required:
Calculate
free cash
flow.

Cash provided by operating activities $17,451

Less: Expenditures on property and equipment 3,869
Dividends paid 6,253
Free cash flow
Illustration 13-17 $7,329
13-49 Calculation of Anheuser-Busch InBev’s free cash flow ($ in millions) LO 4
 Consolidated Financial
APPENDIX 13A
Statements
Learning Objective 5
Prepare a statement of
1. Compute net cash provided by cash flows using the direct
method.
operating activities by adjusting
each item in the income statement from the accrual
basis to the cash basis.

2. Companies report only major classes of operating

cash receipts and cash payments.

3. For these major classes, the difference between

cash receipts and cash payments is the net cash
provided by operating activities.

13-50 LO 5
 Step 1: Operating Activities

Illustration 13A-2
13-51 Major classes of cash receipts and payments LO 5
 Direct Method

Illustration 13A-1
Comparative statements of financial position, income statement,
and additional information for Computer Services Company

13-52 LO 5
Illustration 13A-1
Comparative statements of financial position, income statement,
and additional information for Computer Services Company

13-53 LO 5
 Change in
2017 2016 Account Balance

Additional information for 2017: Illustration 13A-1

1. Depreciation expense was comprised of €6,000 for building and €3,000 for
equipment.
2. The company sold equipment with a book value of €7,000 (cost €8,000, less
accumulated depreciation €1,000) for €4,000 cash.
3. Issued €110,000 of long-term bonds in direct exchange for land.
4. A building costing €120,000 was purchased for cash. Equipment costing €25,000
was also purchased for cash.
5. Issued ordinary shares for €20,000 cash.
6. The company declared and paid a €29,000 cash dividend.
13-54 LO 5
 Step 1: Operating Activities

CASH RECEIPTS FROM CUSTOMERS

For Computer Services, accounts receivable decreased
€10,000. Illustration 13A-4
Analysis of accounts receivable
Accounts Receivable
1/1/017 Balance 30,000 Receipts from customers 517,000
Sales revenue 507,000

12/31/17 Balance 20,000

Illustration 13A-5
Formula to compute cash receipts from customers—direct method

13-55 LO 5
 Step 1: Operating Activities

CASH PAYMENTS TO SUPPLIERS

In 2017, Computer Services Company’s inventory increased
€5,000 and cash payments to suppliers were €139,000.
Inventory
1/1/17 Balance 10,000 Cost of goods sold 150,000
Purchases 155,000

12/31/17 Balance 15,000

Accounts Payable
Payment to suppliers 139,000 1/1/17 Balance 12,000
Purchases 155,000

12/31/17 Balance 28,000

Illustration 13A-8
13-56 Analysis of accounts payable LO 5
 Step 1: Operating Activities

CASH PAYMENTS TO SUPPLIERS

In 2017, Computer Services Company’s inventory increased
€5,000 and cash payments to suppliers were €139,000.

Illustration 13A-9
Formula to compute cash payments to suppliers—direct method

13-57 LO 5
 Step 1: Operating Activities

CASH PAYMENTS FOR OPERATING EXPENSES

Cash payments for operating expenses were €115,000.

Illustration 13A-10
Computation of cash payments for operating expenses

Illustration 13A-11
Formula to compute cash payments for operating expenses—direct method
13-58 LO 5
 Step 1: Operating Activities

CASH PAYMENTS FOR INTEREST

In 2017, Computer Services’ had interest expense of €42,000.

Interest Payable
Cash paid for interest 42,000 1/1/17 Balance
0
Interest expense
42,000
12/31/17 Balance
0

13-59 LO 5
 Step 1: Operating Activities

CASH PAYMENTS FOR INCOME TAXES

Cash payments for income taxes were €49,000.

Income Tax Payable

Cash paid for taxes 49,000 1/1/17 Balance
8,000
Income tax expense
47,000
12/31/17 Balance
6,000

Illustration 13A-13
Formula to compute cash payments for income taxes—direct method

13-60 LO 5
 Step 1: Operating Activities

Illustration 13A-14
Operating activities section of the statement of cash flows

13-61 LO 5
 Step 2: Investing and Financing Activities

Increase in Equipment. (1) Equipment purchased for €25,000,

and (2) equipment sold for €4,000, cost €8,000, book value
€7,000. Illustration 13A-15
Analysis of equipment
Equipment
1/1/17 Balance 10,000 Cost of equipment sold 8,000
Purchases 25,000
12/31/17 Balance 27,000

Accumulated Depreciation
Equipment sold 1,000 1/1/17 Balance
1,000
Depreciation expense
3,000
12/31/17 Balance
3,000

13-62 LO 5
 Step 2: Investing and Financing Activities

Increase in Equipment. (1) Equipment purchased for €25,000,

and (2) equipment sold for €4,000, cost €8,000, book value
€7,000.
Cash 4,000
Accumulated Depreciation—Equipment 1,000
Loss on Disposal of Plant Assets 3,000
Equipment 8,000

13-63 LO 5
 Step 2: Investing and Financing Activities

Increase in Land. Land increased Significant non-cash

€110,000. The company purchased investing and financing
land of €110,000 by issuing bonds. transaction.

Increase in Building. Acquired Investing

building for €120,000 cash. transaction.

Increase in Bonds Payable. Bonds

Significant non-cash
Payable increased €110,000. The
investing and financing
company acquired land by
transaction.
exchanging bonds for land.

13-64 LO 5
 Step 2: Investing and Financing Activities

Increase in Share Capital—

Financing
Ordinary. Increase in Share Capital—
transaction.
Ordinary of €20,000. Increase resulted
from the issuance of new shares.

Increase in Retained Earnings. The

€116,000 net increase in Retained Financing
transaction
Earnings resulted from net income of
(cash dividend)
€145,000 and the declaration and
payment of a cash dividend of €29,000.

13-65 LO 5
 Illustration 13A-16
Statement of cash flows,
2017—direct method

13-66 LO 5
 Step 3: Net Change in Cash Illustration 13A-
1

COMPARE THE NET CHANGE IN CASH ON THE STATEMENT OF CASH

FLOWS WITH THE CHANGE IN THE CASH ACCOUNT REPORTED ON
THE STATEMENT OF FINANCIAL POSITIONS TO MAKE SURE THE
AMOUNTS AGREE.

13-67
LO 5
 Using a Worksheet to Prepare the
APPENDIX 13B Statement of Cash Flows—Indirect
Method
Learning Objective 6
Explain how to use a
worksheet to prepare the
statement of cash flows
using the indirect method.

Illustration 13B-1
13-68 Format of worksheet LO 6
 Preparing a Worksheet

1. Enter in the statement of financial position accounts section the

statement of financial position accounts and their beginning and
ending balances.
2. Enter in the reconciling columns of the worksheet the data that
explain the changes in the statement of financial position
accounts other than cash and their effects on the statement of
cash flows.
3. Enter on the cash line and at the bottom of the worksheet the
increase or decrease in cash. This entry should enable the
totals of the reconciling columns to be in agreement.

13-69 LO 6
 Preparing a
Worksheet

Illustration 13B-3
Completed worksheet—
indirect method
13-70 LO 6
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13-71