Worksheet for preparing a statement of cash flows

By: Rashid Javed | Updated on: October 25th, 2021

A worksheet is like a working paper that assists in preparing a final document. Its use is very common among accountants for preparing financial statements like income statement, balance sheet, and statement of cash flows etc. In this article, we shall discuss a particular type of worksheet that accountants usually use in preparing a statement of cash flows.

Contents:

  1. Purpose and advantages
  2. Format
  3. Sections
  4. Example

Purpose and advantages:

The process of preparing a statement of cash flows involves the analysis of changes in non-cash balance sheet accounts. This process needs to be more formalized and documented when numerous adjustments and complications exist. A special worksheet serves this purpose.

A worksheet is neither a component of financial statements nor a part of the formal accounting record of the company. Its preparation is, therefore, not mandatory. It is an optional tool that facilitates to assemble and classify data for the statement of cash flows which is an essential component of financial statements. The use of worksheet assures full explanation of the changes in balance sheet accounts and their cash effects.

Format and sections of worksheet:

A worksheet for statement of cash flows consists of two sections – a balance sheet effects section and a cash effects section. Balance sheet effects section is used to analyze the changes in account balances and cash effects section is used to collect information to be disclosed in the statement of cash flows. Before further explanation of these two sections, view the skeleton format of the worksheet given below:

worksheet-for-preparing-statement-of-cash-flows-img1

(1). Balance sheet effects section:

The balance sheet effects section is the first section of worksheet that explains the changes in all balance sheet account balances. To serve this purpose, this section makes the use of four columns (see example below). The opening balances are listed in the first column and the closing balances are listed in the fourth (last) column. The accounts having debit balance are listed separately from those having credit balance. The changes in all the balances are carefully computed and reconciled using accounting records and some additional information. These changes are then entered in the second and third (debit and credit) columns as appropriate. The amounts entered in debit and credit columns explain the reasons of the changes in account balances. They are therefore also known as reconciling items or reconciling amounts. If all changes are correctly reconciled and recorded, the totals of debit and credit columns will be equal.

(2). The cash effects section:

The cash effects of the changes analyzed in the balance sheet effects section are extracted and written in cash effects section. Cash effects are either inflows or outflows of cash. These inflows and outflows are classified as operating, investing, or financing cash flows. All inflows are listed in resources column and all outflows are listed in uses column of this section. After carefully entering all changes having cash effects, the two columns are totaled and compared. The difference between the total amounts of resources and uses columns represent net increase or decrease of cash during the period. This increase or decrease in cash must also be in agreement with the increase or decrease written in the cash line of the balance sheet effects section of the worksheet.

If successfully completed, this section provides complete information about the movement of cash required to be disclosed on final statement of cash flows.

A D V E R T I S E M E N T

Example:

Meta company is consistently using indirect method for preparing its statement of cash flows. The comparative balance sheet and some additional information of the company are given below:

Additional information:

  • Net income for the year: $500,000.
  • Cash dividend declared and paid during the year: $280,000.
  • Depreciation expenses for the year: $120,000
  • Sold marketable securities for $70,000; the cost was $30,000.
  • Acquired plant assets for $200,000. $60,000 paid in cash and a mortgage note payable was issued for the balance.

Required:

  1. Prepare a worksheet as a helping tool for the preparation of final statement of cash flows.
  2. Prepare a statement of cash flows of Meta company.

Solution:

(1). Worksheet for statement of cash flows:

worksheet-for-preparing-statement-of-cash-flows-img3

Notice that the cash effects section provides all information required to prepare a statement of cash flows by indirect method.

(2). Statement of cash flows:

worksheet-for-preparing-statement-of-cash-flows-img4
A D V E R T I S E M E N T
11 Comments on Worksheet for preparing a statement of cash flows
  1. ganesh kamali

    thank u lot for your site. which is very helpful for us.
    thank you lot!

    1. K.P.Venugopal

      Thanks a lot

      1. K.P.Venugopal

        Thanks a lot. Gain on sale of marketable securities would have been shown in resources column instead of uses column.

        1. Accounting For Management

          The gain on sale of marketable securities is included in the sales proceeds from sale of marketable securities mentioned in investing activities section. In operating activities, it will be listed in uses column because it is not an inflow of cash from operating activities.

          1. Fahad Aq

            in Direct method it is written that accrued liabilities if increases we subtract them and vice versa
            here you are doing the inverse …. kindly explain….?

  2. ad

    Thank you for the example, really helps a bunch! Just a quick note, I think there is a typo in the example balance sheet, year 2012 cash levels. It should be 100,000 but it is listed as 1,000,000

    1. Accounting For Management

      Corrected, thanks for reporting.

  3. Regina Phalange

    Thank you so much! This is a big help. (; May you continue to share your wonderful accounting knowledge to anyone who needs it. Godbless!

  4. omar

    WHERE IS THE TRIAL BALANCE AND THE INCOME STATEMENT
    AND CAN I KNOW THE THE REASONS OF THE CASH OUT FLOWS?

  5. Tony Wilson

    I have a questions regarding a investment transactions to be presenting in the cash flow statements.
    Our company has investments private equity funds and marketable securities. The GL accounts being set up for private equity fund are 01-beginning balance, 02-contributions, 03-distribution and 04-P&L. The GL accounts being set up for marketable securities are 05-beginning balance, 06-contributions, 07-distribution and 08-P&L.
    I struggle with the stock distributions from private equity. The transaction is that our company receives 50K distribution on 12/16/2018. The stock is sold for 51K and settled on 12/26/2018. Our company receives the cash on 01/16/2019.
    12/16/18 FMV @ distribution date
    Debit-balance sheet 06-contributions 50K
    Credit-balance sheet 03-distribution (50K)

    12/26/18 @ settlement date
    Debit AR 54K
    Credit -balance sheet 07-distribution (54K)
    Debit-balance sheet 08-P&L 4K
    Credit Gain/Loss-income stmt (4K)

    01/16/19
    Debit Cash 54K
    Credit AR (54K)

    Hope somebody can give me some comments to deal with the above transaction in the cash flow statement. My thought is that transactions on 12/16/2018 is a disclose item and others are presented on the cash flow statement.

  6. Nolen

    Why is the mortgage note payable not included in CFF? Shouldn’t the full investment (200k) for the PPE be in CFI then the 140k mortgage note payable be in CFF?

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