The primary information needed from the income statement is net income (or loss) and depreciation as both are considered cash flows to the firm.
In order to analyze your comparative balance sheets and develop your Statement of Cash Flows, you first consider any increases or decreases in your current asset and current liability accounts between the two years of balance sheet information.
Looking at the balance sheets, accounts receivable has increased from 0,000 to 0,000 for an increase of ,000. A decrease in an asset account, a source of funds to the firm, is a positive number. Next is Net Cash Flows from Operating Activities, the summary of the first section of the Statement of Cash Flows.
The equity sections displays the company's retained earnings and the capital that has been contributed by shareholders.
The owner must look at the last two years of the firm's balance sheets and compare the differences between the two in order to develop the Statement of Cash Flows.
The table below gives you sample Comparative Balance Sheets for a firm.
Now, we combine the three sections of the cash flow statement to see where the firm is from a cash flow perspective.
When you sum the net cash flows from each section you get a positive ,500.