Spreadsheet for understanding the relation between changes in income statement items and changes in items in the statement of cash flows The spreadsheet on the textbook's Web site contains a dynamic version of the spreadsheet reproduced below:

In the dynamic version of this spreadsheet available on the Web site, you can change any of the numbers in the yellow shaded section and see the effect of the change in the statement of cash flows section for cash flows from operations.

a. Download the spreadsheet and change the first line of the income statement from $25 to $27, increasing income by $2. What is the effect on $1?

b. Go back to the original configuration. Change only the second line of the income statement from $1 to $5, increasing income by $4. What are the effects on Lines (1) (5) and $1 of the cash flows from operations sections?

c. Go back to the original configuration. Now, make two changes: change the third line of the income statement from ($15) to ($17) and at the same time, change the fourth line from ($4) to ($2), leaving income unchanged. What are the effects on Lines (1) (5) and $1 of the cash flows from Operationssections?

Transcribed Image Text:

Lines in Schematic Statement of Cash Flows Income Statement $ 25 Line (1) Revenues matched with cash inflows this period . 5 Revenues and gains with no cash inflows this period 6 Expenses matched with expenditures this period . Line (2) (15) Expenses and losses with no cash outfiow this period. (4) Line (3) 8. Net Income Direct Method for Deriving Cash Flow from Operations Revenues matched with cash inflows this period Expenses and lasses with no cash outfiow this period . Cash Flow from Operations.. Line (1) $ 25 10 Line (2) 11 (15) 12 $ 10 13 Indirect Method for Deriving Cash Flow from Operations Line (3) Net Income.. 14 Line (4) 15 Addback Expenses and Losses nat Using Cash this Period. Subtract Revenues not Producing Receipts this Period. Line (5) 16 (1) Cash Flow from Operations 17 $ 10 51 ......