Which of the following lists the correct order of steps in preparing the statement of cash flows?

• A. 1. Reconcile the net increase or decrease in cash; 2. Determine cash flows from financing activities; 3. Determine cash flows from investing activities; 4. Determine cash flows from operating activities.
• B. 1. Determine cash flows from financing activities; 2. Determine cash flows from operating activities; 3. Determine cash flows from investing activities; 4. Reconcile the net increase or decrease in cash.
• C. 1. Determine cash flows from operating activities; 2. Determine cash flows from investing activities; 3. Determine cash flows from financing activities; 4. Reconcile the net increase or decrease in cash with the beginning and ending cash balances.
• D. 1. Determine cash flows from investing activities; 2. Determine cash flows from operating activities; 3. Determine cash flows from financing activities; 4. Reconcile the net increase or decrease in cash.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the purpose of the statement of cash flows. It is designed to show how changes in balance sheet accounts and income affect cash and cash equivalents, categorizing cash flows into operating, investing, and financing activities.
2. Step 2: Begin with cash flows from operating activities. This section reflects the cash generated or used by the core business operations, typically starting with net income and adjusting for non-cash items and changes in working capital.
3. Step 3: Proceed to cash flows from investing activities. This section includes cash transactions related to the acquisition or disposal of long-term assets, such as property, plant, equipment, and investments.
4. Step 4: Move to cash flows from financing activities. This section captures cash flows related to borrowing, repaying debt, issuing equity, or paying dividends.
5. Step 5: Reconcile the net increase or decrease in cash. Add the net cash flows from operating, investing, and financing activities to the beginning cash balance to ensure it matches the ending cash balance on the balance sheet.