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Relationships to the Balance Sheet and the Income Statement

Relationships to the Balance Sheet and the Income Statement...

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Relationships to the Balance Sheet and the Income Statement Indirect Method: Operating Activities section Overall goal: to convert from accrual basis per the Income Statement to cash basis for the Statement of Cash Flows Changes in Account Balances during the year: Current Assets Current Liabilities Increase Subtract from Net Income (1) Add to Net Income (3) Decrease Add to Net Income (2) Subtract from Net Income (4) Current Asset example: Accounts Receivable When we record a credit sale of merchandise/service to a customer under accrual accounting: Dr. Accounts Receivable XX Cr. Revenue XX When we record the subsequent collection of cash from a credit customer: Dr. Cash XX Cr. Accounts Receivable XX Accounts Receivable Beg Bal Dr. for Cr. for credit cash sales collections Ending Bal (1) If the Accounts Receivable ending balance > beginning balance , an increase in Accounts Receivable occurred; therefore, credit sales exceeded cash collections during the year. This excess of credit
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