In order to
prepare the cash flow statement by indirect method lets assume to take data
from the first year of operations of a company say ABC. Suppose Company ABC
started at January 2007, with issuing its 60,000 shares in the market where the
value of each share was $1 and the value of total common stock of the Company
ABC was $60,000. All the other essentials such as office, furniture and
equipment of the company was rented for the first year and the Company ABC
provided tax based consultation services to its customers. The balance sheet of
the company at the beginning and the end of the year is as under:-
Balance Sheet of ABC Company
|
Assets
Cash
Account Receivables
Total
|
Dec 31, 2007
$49,000
$36,000
$85,000
|
Jan 1, 2007
$ 0
$ 0
$ 0
|
Change
$49,000 Increase
$36,000 Increase
|
|
Liabilities and
Equity
Accounts Payable
Common Stock
Retained Earnings
Total
|
$5000
$60,000
$20,000
$85,000
|
$ 0
$ 0
$ 0
$0
|
$ 5000 Increase
$ 60,000 Increase
$20,000 Increase
|
Income Statement of ABC Company
|
Revenue
|
$125,000
|
|
Operating Expense
|
$85,000
|
|
Income before taxes
|
$40,000
|
|
Income after taxes
|
$6,000
|
|
Net Income
|
$34,000
|
