Accounting for Managers

Financial Statements
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A way to visualize the cash coming in is with a corollary of
the accounting equation (Table 3-4).
In the direct method, the net cash flow from operations is
computed directly as the net sum of the operating cash flows.
Your firm will do one or the other. Ask about why the particular
Accounting for Managers
56
Indirect Method
Operating Activities
Sales Receipts
Payments for Products
Payments for Operations
Payments for Interest
Payments for Taxes
Unusual Items
Net Cash (Used) by
Operating Activities
3,500,000
(1,750,000)
(1,500,000)
(75,000)
(119,000
150,000
206,000
General Widget, Inc.
Statement of Cash Flows
For the Year Ended December 31, 200_
Investing Activities
Purchase of Property, Plant,
and Equipment
Sales of Property, Plant, and
Equipment
Interest and Dividend Income
Net Cash (Used) by Investing
Activities
(1,850,000
75,000
(1,775,000)
Financing Activities
Short-Term Debt
Long-Term Debt
Capital Stock Issued
Cash Dividends
Net Cash (Used) by Financing
Activities
580,000
1,000,000
450,000
2,030,000
Net (Decrease) in Cash
Cash at Beginning of Year
Cash at End of Year
461,000
(111,000)
350,000
Table 3-3. Statement of cash flows
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statement form was chosen and just learn it. 
The Balance Sheet
The balance sheet is the accounting equation. It lists the firm’s
assets, liabilities, and equity as of a specific date. In this respect
it’s a position statement rather than flow statement. The balance
sheet is the company’s solvency report card. Typically, the date
is the end of the firm’s reporting fiscal year. However, computer
software has made generating reports vastly easier. It’s not
uncommon for a manager to run off last night’s balance sheet
to read with coffee in the morning. 
The balance sheet always balances because of the double-
entry system and debit-credit recording rule correctly applied.
Each asset increase in the equation must have one or more of
the following: 
• asset decrease 
• liability increase 
• equity increase 
• revenue increase 
• gain increase 
• expense decrease 
• loss decrease