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Intermediate Accounting For Dummies by Maire Loughran

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Chapter 7

Follow the Money! Studying Cash Flow

In This Chapter

arrow Recognizing the difference between cash receipts and net income

arrow Looking at the different sections of the statement of cash flows

arrow Presenting cash flow using the direct or indirect method

arrow Considering recent changes affecting presentation

arrow Putting the statement of cash flows to work for you

Intermediate accounting covers financial accounting topics, which are all about the accrual method. Under the accrual method, you record revenue when it is earned and realizable, and record expenses as they are incurred, regardless of whether they were actually paid. The missing piece when using the accrual method of accounting is the effect on business operations when cash changes hands.

For the users of the financial statements to get more of a total picture on the health of the business, cash payments and receipts have to be reconciled with accrual transactions. You accomplish this by preparing a statement of cash flows.

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