In Chapter 4 of this text, we prepared a simple statement of cash flows by focusing on the cash effects of the individual transactions of the period. That is, we prepared the statement from the entries to the cash T-account. This section demonstrates how the statement of cash flows can be prepared when the analysis of individual transactions is either impractical or, in some cases, impossible. We show that the statement can be prepared primarily from the information contained in two balance sheets, the intervening income statement, and the statement of shareholders' equity. This method is followed by most companies, and the resulting statement of cash flows is the same as that prepared from analyzing the entries to the cash T-account. In most cases, however, the method we illustrate here is far more practical. Figure 14-5 contains the December 31, 2011 and 2012, balance sheets of ABC Enterprises and the related income statement and statement of shareholders' equity. Additional information is disclosed in the section that appears below the statements.

In the sections that follow, we prepare a statement of cash flows under both the direct and indirect methods from the information contained in Figure 14-5. Cash provided (used) by operating activities is derived first, followed by the cash provided (used) by investing activities, and cash provided (used) by financing activities. In the figures that appear throughout these sections, ...

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