Could anybody explain how current assets and current liability balances can be used in the preparation of the cash flow statement.

I will very grateful for any help.
Thank you.

This same question is over on this thread:

https://www.askmehelpdesk.com/accoun...ow-339794.html

Thank you very much for the answer to this Q. I read ,it is very good information, I just need to confirm my Q. was not full I try find answer to same Q but for direct method .
HOW CURRENT ASSETS AND CURRENT LIABILITY BALANCE CAN BE USED IN THE PREPARATION OF THE CASH FLOW STATEMENT BY DIRECT METHOD?

Direct method is a little more difficult until you get used to it, and more difficult to explain. There is a pattern to it, just like indirect, but it's harder to understand that pattern until you're more experienced in accounting. (Which isn't going to happen in the timeframe of this class.)

I could list a set of rules, but I would never remember them all, and problems can contain different information and split things up in different ways. If I saw the whole problem I would know what to do with it -- but coming up with all examples you may run across, nope.

You must understand that the adjustments I'm giving are NOT on the cash flow statement itself. That's one difference between direct and indirect. Indirect starts with net income and makes a series of adjustments. Direct states directly where the money came from or went to. (Such as "receipts from customers" or "purchases of inventory.") So the adjustments you do are done over on scrap paper somewhere and the final answer is put into the operating section.

Common ones I can think of, with increase and decrease referring to change in balance, just like before:
Receipts from customers = Sales + decrease in Accts Receivable OR - increase in Accts Receivable

Purchases of inventory = Cost of goods sold (+ increase in inventory OR - decrease in inventory) AND (+ decrease in payables OR - increase in payables)
Note that has two adjustments. Note you adjust payables differently than indirect. Yes, confusing.

Prepaid expenses of any sort = matching expense + increase in prepaid OR - decrease in prepaid

The pattern is based on accruals and deferrals. Most people never really quite learn that, plus it's learned in relation to adjusting entries, but there's more to it than adjusting entries. I will attempt to explain.

Accruals are anything where you have recorded an expense or revenue but there has been no money exchanged. That is, payable and receivable accounts - those represent money that is due at a later point. Hence, they are accrued accounts. When using these accounts as an adjustment, you adjust in the opposite direction. Notice above that I did opposite for A/R adjustment and for A/P adjustment.

You can apply this to any receivable or payable you happen to have. Such as salaries payable. That would be salaries expense + decrease in salaries payable OR - increase in it. You take the "matching" expense and adjust the payable the opposite direction from the balance change.

Deferrals are when the money is already exchanged, but you have not yet recorded a revenue or an expense. This goes beyond what was learned for adjusting entries. For instance, inventory -- you're deferring recognition of the expense (COGS) until it's sold. The adjustments for these go the same direction as the change in balance.

Note above that I adjusted the prepaid and the inventory the same direction as the change in balance. Both cases the expense is deferred. If you had some deferred revenue it would be the same type of thing.

The basic ones I gave above are common. But your problem could include all sorts of expenses that match with a payable, or may include deferred revenues, or who knows what. If you understood the pattern and can apply that, it won't matter what your problem gives. If you have problems including stuff you can't figure out, you'd have to ask about those specific things.

Now, someone remind me to bookmark this one in case someone asks again. Whew!

What are the current assests and current laibilities