Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

13. Statement of Cash Flows

Introduction to the Statement of Cash Flows

Financial Accounting

13. Statement of Cash Flows

Introduction to the Statement of Cash Flows

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Multiple Choice

When developing a pro forma income statement, which of the following is most directly used to estimate cash flows from operating activities on the statement of cash flows?

Total assets at the end of the period

Dividends declared during the period

Retained earnings from the previous year

Net income adjusted for non-cash items and changes in working capital

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Verified step by step guidance

Understand that a pro forma income statement is a financial projection used to estimate future income and expenses, and it is closely tied to the statement of cash flows.

Recognize that cash flows from operating activities are primarily derived from net income, which is adjusted for non-cash items (e.g., depreciation, amortization) and changes in working capital (e.g., accounts receivable, inventory, accounts payable).

Identify that non-cash items are added back to net income because they do not involve actual cash outflows, while changes in working capital reflect the cash impact of operational activities.

Exclude other options such as total assets, dividends declared, and retained earnings from the previous year, as they are not directly related to estimating cash flows from operating activities.

Conclude that the correct approach to estimate cash flows from operating activities is to start with net income and adjust it for non-cash items and changes in working capital.