Abstract
The statement of cash flows is one of the required financial statements of public companies, and thus is required of all accounting majors. After learning the other required financial statements in an introductory financial accounting course and, again, in the first intermediate accounting course, accounting majors learn how to prepare the statement of cash flows in the second or last intermediate accounting course. Most accounting majors find the statement of cash flows significantly more difficult to learn than any other financial statements. Especially, students find it most difficult to understand the indirect method of preparing the statement of cash flows. Preparing the statement of cash flows using the indirect method, students go through the most difficult time, specifically, doing the adjustments that are made to net income to reconcile to cash flows from operating activities.In this paper, presented is a different way to explain the principles of indirect method of preparing the statement of cash flows with a focus on the reconciliation of net income to cash flows from operating activities. Different from the explanations in the textbooks available in the market, the approach presented in the paper is preferred by all the students who were taught the statement of cash flows. Also, pointed out in the paper are a few things that students are easily confused of in learning the statement of cash flows.
Highlights
And currently, accounting is one of the popular majors in college of business of any university or college
After learning the other required financial statements in an introductory financial accounting course and, again, in the first intermediate accounting course, accounting majors learn how to prepare the statement of cash flows in the second or last intermediate accounting course
Most accounting majors find the statement of cash flows significantly more difficult to learn than any other financial statements
Summary
And currently, accounting is one of the popular majors in college of business of any university or college. Demand for accounting majors in the job market seems constant whether the economy is in good shape or in not-so-good shape. Among the basic accounting knowledge, there are basic and required financial statements of public companies. The importance and value of learning the statement of cash flows cannot be over-emphasized because it is required of all accounting majors whichever school they attend. It is observed that many students in the intermediate accounting course struggle with the chapter where the statement of cash flows is covered and move on leaving significant portion of it not understood, indirect method of preparing the statement. Presented are a few points that are found most confusing to students in learning the statement of cash flows. This paper consists of six sections hereafter: „literature review‟ followed by „significance of the issue,‟ „purpose of the paper,‟ „a new approach to explaining the indirect method,‟ „open-ended test of principles of indirect method,‟ and „conclusions, suggestions, and limitations.‟
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