Reconciling items for indirect cash flow presentation
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The ability to manage cash flow is essential for businesses. Many small businesses fail because they are unable to manage the ups and downs of periodic cash flows. Listed below are items that a corporation gave up in order to receive cash.
For each item listed in the first column, describe the effect on the elements of each financial statement using the format shown. Indicate "NE" for no effect. An example transaction has been completed for you. The increases to cash have already been recorded.
1. Why is an increase in accounts receivable a subtraction when adjusting from net income to operating cash flow?
2. Why is a decrease in accounts payable a subtraction when adjusting from net income to operating cash flow?
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Solution Summary
Your schedule is completed with explanations of why the YES and NO comments are entered and a few sentences explain the reconciling of AR and AP in the indirect operating cash flows.
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See the attached file for the table.
1. Why is an increase in accounts receivable a subtraction when adjusting from net income to operating cash flow?
An increase in AR results because what is billed was greater than what was collected. Billings were recorded in ...
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