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Chapter 11 lecture notes - Chapter 11 Preparing and...

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Chapter 11 Preparing and Analyzing the Statement of Cash Flows
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In Chapter 11 You will learn how to: o Prepare a Statement of Cash Flows…. o …from an Income Statement, o and a comparative Balance Sheet
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Classification of Cash Flows
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Accrual Basis versus Cash Basis of Accounting Accrual Basis Recognizes Revenues at the time the earnings process is complete, and expenses at the time they are incurred, regardless of cash flow. Cash Basis Recognizes Revenues when the Cash is Received, and Expenses at the time the Cash is Paid.
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Financial Statements are prepared using the Accrual Basis of Accounting The Statement of Cash Flows Requires that the Accrual Basis be converted back to the Cash Basis of Accounting. This Can be Done either: Directly by examining each item on the Income Statement, or Indirectly By Adjusting Net Income for the changes in the Non-Cash Balance Sheet Accounts.
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Sales $600 ($500 Cash, $100 on Account) Cost of Goods Sold was $250 Cash Accounts Receivable $500 $100 Sales $600 Cost of Goods Sold $250 Inventory $250 Statement of Cash Flows Direct Method
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Supplies Expense Supplies $20 $10 Cash $30 Paid $30 for Supplies: Used $20 of them; $10 remain Statement of Cash Flows Direct Method
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