Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

SOLUTION TO EXERCISE 13-7

TIP: When preparing a statement of cash flows, companies may need to make numerous adjustments of net income. A worksheet is often used to assemble and classify the data that will appear on the statement. The steps in preparing the worksheet are: (1) Enter in the balance sheet accounts section the balance sheet accounts and their beginning and ending balances. (2) Enter in the reconciling columns of the worksheet the data that explain the changes in the balance sheet 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.

ILLUSTRATION 13-2 CONVERSION FROM ACCRUAL BASIS TO CASH BASIS (L.O. 3, ^**6)

Accrual Basis Revenues Earned - Expenses Incurred = Net Income	Cash Basis Cash In from Customers - Cash Out for Operations = Net Cash Provided by Operating Activities
INDIRECT METHOD
To Compute Net Cash Provided by Operating Activities: Net income Add noncash charges (such as depreciation expense and amortization of intangibles) Add losses on sale of assets ...