BALANCE SHEET ACCOUNTS ASSETS Dr + Cr Balance Current Assets (account numbers 10000 - 16999) 10100 10200 10600 12100

12500 13100 14100 15300 Cash - Regular Checking Cash - Payroll Checking Petty Cash Fund Accounts Receivable Allowance for Doubtful Accounts Inventory Supplies Prepaid Insurance LIABILITIES Dr Cr + Balance Current Liabilities (account numbers 20000 - 24999) 20100 20200 21000 22100 23100 24500 Notes Payable - Credit Line #1 Notes Payable - Credit Line #2 Accounts Payable Wages Payable Interest Payable Unearned Revenues

Long-term Assets (account numbers 17000 - 18999) Property, Plant, and Equipment 17000 Land 17100 Buildings 17300 Equipment 17800 Vehicles 18100 Accumulated Depreciation - Buildings 18300 Accumulated Depreciation - Equipment 18800 Accumulated Depreciation - Vehicles

Long-term Liabilities (account numbers 25000 - 26999)

25100 Mortgage Loan Payable 25600 Bonds Payable 25650 Discount on Bonds Payable

STAKEHOLDER EQUITIES Dr Cr + Balance

Owner's Equity (account numbers 27000 - 29999)

27100 Mary Smith, Capital 27500 Mary Smith, Drawing

PROFIT & LOSS SHEET ACCOUNTS OPERATING EXPENSES Dr + Balance Cr OPERATING REVENUES Dr Cr + Balance

Cost of Goods Sold(account numbers 40000-49999)

41010 41022 42015 43110 COGS - Division #1, Product Line 010 COGS - Division #1, Product Line 022 COGS - Division #2, Product Line 015 COGS - Division #3, Product Line 110

Operating Revenues (account numbers 30000 - 39999)

31010 31022 32015 33110 Sales - Division #1, Product Line 010 Sales - Division #1, Product Line 022 Sales - Division #2, Product Line 015 Sales - Division #3, Product Line 110

Marketing Expenses(account numbers 50000-50999)

50100 50150 50200 50600 Marketing Dept. Salaries Marketing Dept. Payroll Taxes Marketing Dept. Supplies Marketing Dept. Telephone

Payroll Dept. Expenses (account numbers 59000 - 59999)

59100 59150 59200 59600 Payroll Dept. Salaries Payroll Dept. Payroll Taxes Payroll Dept. Supplies Payroll Dept. Telephone

Other (account numbers 90000 - 99999) Non-operating Expenses and Losses 96100 Loss on Sale of Assets
Note:Generally these types of accounts are increased with a debit: Dividends (Draws) Expenses Assets Losses

Other (account numbers 90000 - 99999) Non-operating Revenues and Gains 91800 Gain on Sale of Assets
Note:Generally these types of accounts are increased with a credit: Gains Income Revenues Liabilities Stockholders' (Owner's) Equity

The statement of cash flows is one of the main financial statements. (The other financial statements are the balance sheet, inc The cash flow statement organizes and reports the cash generated and used in the following categories: 1. Operating activities converts the items reported on the income statement from the accrual basis of accountin g to cash. reports the purchase and sale of longterm investmen ts and property, plant and equipment . reports the issuance and repurchas e of the company' s own bonds and stock and the payment of dividends.

2.

Investing activities

3.

Financing activities

4.

Supplemental information

reports the exchange of significant items that did not involve cash and reports the amount of income taxes paid and interest paid.

When an asset (other than cash) increases, the Cash account decreases. When an asset (other than cash) decreases, the Cash account increases. When a liability increases, the Cash account increases. When a liability decreases, the Cash account decreases. When owner's equity increases, the Cash account increases. When owner's equity decreases, the Cash account decreases.

Format of the Statement of Cash Flows

The statement of cash flows has four distinct sections:

1. Cash involving operating activities 2. Cash involving investing activities 3. Cash involving financing activities 4. Supplemental information.

Assuming that the cash flow statement is being prepared using the indirect method (the method used by most companies) the differences in a company's balance sheet accounts will provide much of the needed information. For example, if the statement of cash flows is for the year 2005, the balance sheet accounts at December 31, 2005 will be compared to the balance sheet accounts at December 31, 2004. The changes--or differences--in these account balances will likely be entered in one of the sections of the statement of cash flows.

Shown below is each of the four sections of the statement of cash flows, followed by a list of those balance sheet accounts which affect it.

1. Cash Provided From or Used By Operating Activities

This section of the cash flow statement reports the company's net income and then converts it from the accrual basis to the cash basis by using the changes in the balances of current asset and current liability accounts, such as: Accounts Receivable Inventory Supplies Prepaid Insurance Other Current Assets Notes Payable (generally due within one year) Accounts Payable Wages Payable

Payroll Taxes Payable Interest Payable Income Taxes Payable Unearned Revenues Other Current Liabilities

In addition to using the changes in current assets and current liabilities, depreciation and the gains/losses on the sale of long-term assets are removed so that the income statement net income is converted from the accrual basis to cash.

2. Cash Provided From or Used By Investing Activities

This section of the cash flow statement reports changes in the balances of long-term asset accounts, such as: Long-term Investments Land Buildings Equipment Furniture & Fixtures Vehicles

In short, investing activities involve the purchase and/or sale of long-term investments and property, plant, and equipment.

3. Cash Provided From or Used By Financing Activities

This section of the cash flow statement reports changes in balances of the long-term liability and stockholders' equity accounts, such as:

Notes Payable (generally due after one year) Bonds Payable Deferred Income Taxes Preferred Stock Paid-in Capital in Excess of Par-Preferred Stock Common Stock Paid-in Capital in Excess of Par-Common Stock Paid-in Capital from Treasury Stock Retained Earnings Treasury Stock

In short, financing activities involve the issuance and/or the repurchase of a company's own bonds or stock. Dividend payments are also reported in this section.

4. Supplemental Information

This section of the cash flow statement discloses the amount of interest and income taxes paid. Also reported are significant exchanges not involving cash. For example, the exchange of company stock for company bonds would be reported in this section.

Where To Enter The Balance Sheet Changes

Take a look at the summary below--it shows where the changes in balance sheet accounts should be entered on your statement of cash flows: A change in this ...is reported in this section of the cash flow statement

balance sheet category

Current Assets* Current Liabilities Long-term Assets Long-term Liabilities Stockholders' Equity

Operating Activities Operating Activities Investing Activities Financing Activities Financing Activities

*This refers to current assets other than Cash.

Adjustments Within The Operating Activities Section

When we use the indirect method to prepare a statement of cash flows we begin with the net income figure from the company's income statement as our starting point. We then make adjustments to that figure to arrive at the cash amount.

If all of a company's revenues were cash sales (no credit sales), and if the company paid out cash for all of its expenses, then net income would equal the cash from operating activities. However, since some of the revenues and expenses on the income statement were not cash transactions, we must include depreciation, gain or losses on sales of assets, and the changes in current assets and current liabilities. These adjustments will be illustrated in the hypothetical story presented in Part 2.

ments are the balance sheet, income statement, and statement of stockholders' equity.)