This is “How Is the Statement of Cash Flows Prepared and Used?”, chapter 12 from the book Accounting for Managers (v. 1.0). For details on it (including licensing), click here.

 John: I just received the income statement and balance sheet for 2012. Profits look great, but our cash position seems to have deteriorated. We had $130,000 in cash to start the year and ended with only$32,000. I noticed cash was declining throughout the year when I reviewed our monthly financial statements, but I’m concerned about how far our cash balance has dropped. Steve: You’re right, John. We encountered cash flow problems several times throughout the year in spite of increased sales and profits. On several occasions, I had to delay payments to creditors because of cash flow issues. John: Seems to me we shouldn’t have this problem. Where is our cash going? Linda: Good question. Let me round up our cash flow information for the year. I’ll have something for you by next week. John: Great! I’d like to start next week’s meeting by discussing how much cash we generated in 2012 from our daily operations. I realize net income is shown on an accrual basis, but I’d like to know how much net income was received in the form of cash. Linda: No problem. I’ll have it for you next week.