Identify the starting point with the net income for the period
The starting point of the cash flow statement is to determine the net income for the period. This task involves reviewing financial statements and identifying the net income figure. The net income represents the total profit or loss generated by the company during the specified period. The desired result is to accurately determine the net income value to proceed with the cash flow statement.
Add back non-cash items to the net income
Certain items included in the net income are non-cash in nature and need to be added back. These items may include depreciation, amortization, and other non-cash expenses. By adding back these non-cash items, we can arrive at the cash basis of the net income. The desired result is to calculate the cash basis net income by adding back the non-cash items to the net income.
Prepare adjustments for changes in current assets and liabilities
Changes in current assets and liabilities impact the cash flow of a company. This task involves analyzing and adjusting the changes in items such as accounts receivable, accounts payable, inventory, and other current assets and liabilities. The desired result is to accurately calculate the adjustments for changes in current assets and liabilities to reflect the cash flow statement.
Calculate depreciation, depletion, and amortization expenses
Depreciation, depletion, and amortization are non-cash expenses that need to be accounted for in the cash flow statement. This task involves calculating the depreciation, depletion, and amortization expenses based on the company's accounting policies. The desired result is to accurately determine the expenses related to depreciation, depletion, and amortization for inclusion in the cash flow statement.
Investigate any other non-cash expenses worth accounting for
Apart from depreciation, depletion, and amortization, there may be other non-cash expenses that need to be accounted for in the cash flow statement. This task involves investigating and identifying any other non-cash expenses that should be included. The desired result is to accurately determine and account for any other non-cash expenses in the cash flow statement.
Analyze investments in non-current assets
Investments in non-current assets can have an impact on the cash flow of a company. This task involves analyzing the investments made in non-current assets such as property, plant, and equipment, and determining their impact on the cash flow statement. The desired result is to accurately analyze the investments in non-current assets and reflect them in the cash flow statement.
Evaluate changes in non-current liabilities
Changes in non-current liabilities can affect the cash flow of a company. This task involves evaluating the changes in non-current liabilities such as long-term loans and bonds and determining their impact on the cash flow statement. The desired result is to accurately evaluate the changes in non-current liabilities and incorporate them into the cash flow statement.
Calculate cash flow from investing and financing activities
Cash flow from investing and financing activities provides insights into how a company is utilizing its funds. This task involves calculating the cash flow related to investing and financing activities. The desired result is to accurately determine the cash flow from investing and financing activities and include it in the cash flow statement.
Sum total of cash flow from operations, investing, and financing
The cash flow from operations, investing, and financing activities need to be summed up to arrive at the total cash flow for the specified period. This task involves adding up the cash flow figures from the previous tasks. The desired result is to calculate the total cash flow by summing up the cash flow from operations, investing, and financing activities.
Reconcile the net change in cash with cash amounts at the beginning and end of the period
Reconciling the net change in cash with the cash amounts at the beginning and end of the period helps identify any discrepancies. This task involves comparing the net change in cash, as calculated earlier, with the actual cash amounts available at the beginning and end of the period. The desired result is to reconcile the net change in cash with the cash amounts to ensure accuracy in the cash flow statement.
Draft the initial indirect method cash flow statement.
The initial draft of the indirect method cash flow statement needs to be prepared based on the calculations and adjustments made in the previous tasks. This task involves creating the cash flow statement with the net cash flow from operations, investing, and financing activities. The desired result is to draft the initial indirect method cash flow statement for further review and approval.
Approval: Financial Manager
Prepare the final indirect method cash flow statement report after the approval from Financial Manager
After obtaining approval from the Financial Manager, the final indirect method cash flow statement report needs to be prepared. This task involves incorporating any necessary changes or adjustments as per the Financial Manager's feedback and finalizing the cash flow statement report. The desired result is to prepare the final indirect method cash flow statement report for dissemination and analysis.
Submit the Cash Flow Statement to the top management
The Cash Flow Statement needs to be submitted to the top management for their review and analysis. This task involves preparing the necessary documents and submitting the cash flow statement to the appropriate individuals or departments in the organization. The desired result is to submit the Cash Flow Statement to the top management for their decision-making and strategic planning.
Archive the Cash Flow Statement for auditing and future reference
The Cash Flow Statement needs to be archived for auditing purposes and future reference. This task involves organizing and storing the Cash Flow Statement in a secure and accessible manner. The desired result is to archive the Cash Flow Statement for easy retrieval during audits and as a reference for future financial analysis.
