I understand what the difference is the income statements, balance sheets, and cash flow statements in a general sense. The book states:
“Items on the cash flow statement come from two sources: (1) income statement items and (2) changes in balance sheet accounts.”
Does this mean that internal accountants and outside auditors draft the balance sheet and income statement first, then use those components to construct the cashflow statement?
Yes.
In 27f, the textbook example shows us a cashflow statement, a balance sheet, and income statement. We are asked to use the indirect method to find
*operating cashflow of 42500
* investment cashflow of -10,000
* financing cashflow of -8500
After much hairpulling, I finally confirmed how they got to to these figures (I can’t imagine anyone doing this in the prescribed 90 seconds on the real exam)
So added together, the total cashflow is +24,000
If you look at the balance sheet, the cash listed is 33,000 and the previous year it was 9,000 ( difference of 24,000 )
For the purposes of CFA Part I, can we sorta hack the exam with this shortcut or is it not reliable because of some items that might not show up on the financial statements? Or are these detailed calculations reserved for CFA Part II?
The purpose of the statement of cash flows is to confirm the difference in cash from the beginning of the year to the end of the year, and to categorize that difference as a combination of CFO, CFI, and CFF. You should be able to do that reconciliation and categorization at Level I.