How do you cross check the statement of cash flows? Solution We can cross check statement of Cash flows in following ways :- 1) Cross check from Profit and loss statement On the cash flow statement, operating activities derive from the operations of the business itself. They can be presented either through the direct or indirect method. The direct method explicitly states the amounts received from customers and paid to suppliers and employees. The indirect method, which is more common, begins with net income and adjusts for any non-cash transactions and any changes in accounts receivable or other balance sheet items related to the operations. Both methods will have the same end result and both methods are acceptable. 2) Checking Investing activities from balance sheet Investing activities concern investments in property and equipment for the business, as well as financial investments. In the cash flow statement, investing activities include both outlays for purchases and cash receipts for disposals of investments. We can cross check all the investing activties from balance sheet as well as from bank. 3) Cross check Financing activities from balance sheet as well as from bank Financing activities are the activities related to financing the business with both debt (loans, which are shown as liabilities) and equity (capital stock and other equity instruments). Common examples of items in this category include loan principal received, repayments and dividends paid. So, we need to cross check all the activites from bank and cash account. The rules for cash flow adjustments to net income are: 1) Changes in equity affect Financing activites An asset increase during the period decreases cash flow from profit A liability decrease during the period decreases cash flow from profit An asset decrease during the period increases cash flow from profit A liability increase during the period increases cash flow from profit.

1. How do you cross check the statement of cash flows?
Solution
We can cross check statement of Cash flows in following ways :-
1) Cross check from Profit and loss statement
On the cash flow statement, operating activities derive from the operations of the business itself.
They can be presented either through the direct or indirect method. The direct method explicitly
states the amounts received from customers and paid to suppliers and employees. The indirect
method, which is more common, begins with net income and adjusts for any non-cash
transactions and any changes in accounts receivable or other balance sheet items related to the
operations. Both methods will have the same end result and both methods are acceptable.
2) Checking Investing activities from balance sheet
Investing activities concern investments in property and equipment for the business, as well as
financial investments. In the cash flow statement, investing activities include both outlays for
purchases and cash receipts for disposals of investments.
We can cross check all the investing activties from balance sheet as well as from bank.
3) Cross check Financing activities from balance sheet as well as from bank
Financing activities are the activities related to financing the business with both debt (loans,
which are shown as liabilities) and equity (capital stock and other equity instruments). Common
examples of items in this category include loan principal received, repayments and dividends
paid.
So, we need to cross check all the activites from bank and cash account.
The rules for cash flow adjustments to net income are:
1) Changes in equity affect Financing activites
An asset increase during the period decreases cash flow from profit
A liability decrease during the period decreases cash flow from profit
An asset decrease during the period increases cash flow from profit
A liability increase during the period increases cash flow from profit