Chapter 2

Laying Out Cash Flows and Changes in Equity

In This Chapter

arrow Separating cash from profit

arrow Connecting the dots with the statement of cash flows

arrow Presenting cash flow by using the direct and indirect methods

arrow Summarizing changes in stockholders’ equity

While accounting is all about the accrual method, which means revenue is recorded when it's earned and expenses are recorded when they're incurred, the missing piece of the puzzle is cash changing hands. For the users of financial statements to get a total picture of the health of the business, cash payments and receipts have to be reconciled with accrual transactions.

You accomplish this reconciliation by preparing a statement of cash flows. In this chapter, you find out about the three sections of the statement of cash flows — operating, investing, and financing — and what types of accounting information are reported in each. This chapter also brings you up to speed on the two acceptable ways to prepare the statement of cash flows — by using the direct or indirect method — and concludes with a brief explanation of the statement ...

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