Your friend, Lulu Tang, recently completed the second year of her business and just received annual financial statement from her accountant. Lulu finds the income statement and statement of financial position informative but does not understand the statement of cash flows. She says the first section is especially confusing because it contains a lot of additions and subtractions that do not make sense to her. Lulu adds, "The income statement tells me the business is more profitable than last year and that's most important. If I want to know how cash changes, I can look at comparative statements of financial position."

Required

Subject to Lulu's comments on the statement of cash flows, explain why the "first section" is so confusing, and suggest how it might be rectified.