How to Prepare Statement of Cash Flows in 7 Steps - IFRSbox

Changes in the balance sheet accounts drive the amounts reported in the statement of cash flows. The three primary financial statements of a business — the balance sheet, the income statement, and the statement of cash flows — are intertwined and interdependent.

Cash Flow Computations - Indirect Method

Balance sheet account changes are the basic building blocks for preparing a statement of cash flows. Note in the cash flow from operating activities section in the figure that net income is listed first, then several adjustments are made to net income to determine the amount of cash flow from operating activities. The assets and liabilities included in this section are those that are part and parcel of the profit-making activity of a business.

The inventory asset account is decreased credited when recording cost of goods sold expense. Recording depreciation expense reduces the book value of the fixed assets being depreciated.

To be more precise, recording depreciation increases the balance of the accumulated depreciation contra account that is deducted from the original cost of fixed assets. Recording depreciation does not involve a cash outlay. The cash outlay occurred when the business bought the assets being depreciated, which could be years ago.

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What Is the Difference Between Income Statement, Balance Sheet, and Cash Flow? -- The Motley Fool

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