1. Operating Activities – Calculating Cash Flow Amounts (indirect)
Steps for preparing the Operating Section:
Net Income - always start with the Net Income figure.
Net income approximates cash flow, so it is a good starting point.
Next, reverse the impact of Non-cash Expenses to the Net Income figure.
Next, reverse the impact Gains and Losses on sales of long-term assets to the Net Income figure.
Last, compare the current year and prior year account balances for all of the current asset and current liability accounts to recognize the cash impact of the change.
From the income statement, take net income, depreciation, depletion, and amortization expense, and any gains or losses on the sale of long-term assets. From the comparative balance sheets, compute the increase or decrease in each current asset and current liability account.

2. Cash Flow Template: Operating
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities: +
Depreciation/depletion/amortization expense
Loss on sale of long-term assets -
Gain on sale of long-term assets
Increases in current assets other than cash
Decreases in current assets other than cash
Increases in current liabilities
Decreases in current liabilities =
Net cash provided by operating activities
The first step to prepare the operating section of the cash flow statement is to lay out the template as shown above.

3. Investing - Calculating Cash Flow Amounts
Each Long-term Asset account is reviewed for changes to see if the change resulted in a source or use of cash.
Long-term asset account changes (except accumulated depreciation/amortization)
Increase long-term asset account – Use of Cash
Decrease long-term asset account – Source of Cash
Investing activities affect long-term assets, such as plant assets, investments and notes receivable. Above is a template for the investing section for the statement of cash flows.

4. Investing - Calculating Cash Flow Amounts
Cash Flows from Investing Activities +
Sales of long-term assets -
Purchases of long-term assets
Collections of notes receivable
Loans to others =
Net cash provided by (used for) investing activities
Investing activities affect long-term assets, such as plant assets, investments and notes receivable. Above is a template for the investing section for the statement of cash flows.

5. Financing - Calculating Cash Flow Amounts
Financing activities affect long-term liabilities and stockholders’ equity.
Each long-term liability and stockholders’ equity account is reviewed for changes to see if the change resulted in a source or use of cash.
Long-term liability and stockholders’ equity account changes
Increase in account – Source of Cash
Decrease in account – Use of Cash
Exceptions – Treasury Stock and Dividends
Investing activities affect long-term assets, such as plant assets, investments and notes receivable. Above is a template for the investing section for the statement of cash flows.

6. Financing - Calculating Cash Flow Amounts
Cash Flows from Financing Activities +
Issuance of stock -
Purchase of treasury stock
Borrowing
Payment of notes and bonds payable
Payment of dividends
Net cash provided by (used in) financing activities
Financing activities affect liabilities and stockholders’ equity, such as Notes payable, Bonds payable, Long-term debt, Common stock, Paid-in capital in excess of par, and Retained earnings. A template for the financing activities section of the Statement of Cash Flows is shown above.

7. Exercise #1: I = inflow (addition or source) O = outflow (subtraction or use) NCA – non-cash activity
Exercise #2: Build a cash flow using the indirect method (next page, also)