T-Accounts, Debits, and Credits -- Oh My! Preparing a Statement of Cashflows

Learn the best strategies for approaching any statement of cash flows question on the CPA Exam. Watch as Roger Philipp, CPA, CGMA, builds a Statement of Cash Flows from the ground up, utilizing a 5-step process that breaks down and demystifies this notoriously difficult task.

Tune in to:

• Learn how to create t-accounts for all balance sheet accounts
• Use journal entries to ‘solve for cash’
• Make the connection between t-accounts, debits, credits and the big picture
• Understand the use of the direct and indirect methods when preparing a statement of cash flows

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Video Transcript Sneak Peek:

Welcome back. We're going to now talk about preparing a statement of cash flows. Now, this is an important process, step by step how to prepare it. I'm going to go through the long version, because I want you to learn it. And then, as you're going through the questions, you can take whatever short cut you want. But if you don't understand it, it's hard to take a short cut.

So, starting out, you'll see here it says, "Preparing a statement of cash flows. "Step one, set up a statement of cash flows "in a three column format." So, chances are, a question like this could be a drag or drop, fill in the blank. You may be asked to prepare just an operating, investing or financing activity section.

Back in my day, when I was your age, instead of having 15 minutes per task based simulation, we had an hour problem. We had four one hour problems. So what that meant was, you got a blue book, you just have to brain up, and prepare a whole statement of cash flows from scratch, and they asked that before.
Now it is, you just need to do sections of it.

But I want to kind of walk you through how to set up the statement, plus, it's great for those in the real world, who's like, "Oh my gosh, I finally understand what a statement of cash flows is for, and what the heck we're doing." Instead of just being a robot. La la la CPA, cut, paste and attach. CPA, certified pain in the-- CPA, can't pass anything. Anyway, so the point-- Just kidding. The point is, that we need to learn what statement of cash flows is, so I'm going to walk you through it.

So step one, set up a three column format. I'm going to have debits, credits, change and cash. It says leave ample space. "At the bottom of the statement, fill in the amounts for the net increase or decrease in cash, and the beginning and ending balances of cash."