How Do I Find Cash Flows From Operations?

Question

Statement of Cash Flows, Financial Accounting and Reporting

Answer 1

To find cash flow from operations:

1. Net Income, plus
2. Non-cash transactions (ex: depreciation, amortization, non-cash gains/losses, etc.), + / -
3. Changes in working capital (accounts receivable, accounts payable, inventory, etc.)
4. An increase in current operating assets is a cash outflow because the company had to spend money to obtain the asset (ex: buying inventory)
5. An increase in current operating liabilities results in a cash inflow, because the company has a future obligation that has not yet been paid, meaning they have not spent the cash yet.
6. A decrease in assets is a cash inflow, because the company sold or collected the asset (companies make money from selling inventory, collecting AR)
7. A decrease in liabilities is a cash outflow, because the company had to pay money to satisfy they liability (remit payment for accounts payable)

Answer 2

To find cash flows from operations, convert accrual basis income statement figures to cash basis:

1. Subtract an Increase in Accounts Receivable (e.g., Add a Decrease in Accounts Receivable)
2. Subtract an Increase in Inventory (e.g., Add a Decrease in Inventory)
3. Subtract an Increase in Prepaid Expenses (e.g., Add a Decrease in Prepaid Expenses)
4. Add an Increase in Accounts Payable (e.g., Subtract a Decrease in Accounts Payable)
5. Add an Increase in Accrued Expenses (e.g., Subtract a Decrease in Accrued Expenses)
6. Add Depreciation and Amortization Expenses for the Year