Teaching the Cash Flow Statement

• In Event: ED Talks-short (e.g., 10-minute TED-like talks) talks about Teaching and Learning:

Abstract

Proposal for a Teaching Session in the American Accounting Association Northeast Region meeting from October 3 through October 5, 2019 in New York City.

Almost anyone with experience teaching the indirect method for cash flow from operations has encountered this problem: many (most? almost all?) students believe at some point that the amounts relating to the changes in balance sheet accounts are simply the ending balances minus the beginning balances for all the working capital accounts. Yet this is not true for almost all public companies.

After decades of teaching the indirect method to undergraduate, graduate, MBA, law and executive students, we have found a way to teach it that lets the student build up their knowledge in a systematic way without misleading them. Our methods rely on students being introduced to the basics of the balance sheet, the income statement, journal entries, ledgers (T-accounts), adjusting and closing entries. The primary tool we use is a cash flow worksheet that helps keep track of non-cash balance sheet amounts, the income statement and cash used for and obtained from various sources.

This session will cover all aspects of teaching the indirect method cash flow statement including: usefulness of the indirect method statement, importance of a worksheet approach, important transactions to include in homework, alternative forms for the worksheet and how to work through it in class.

Rick Antle
Stanley J. Garstka

Authors

• Ricky Lee Antle, Yale School of Management

• Stanley J. Garstka, Yale School of Management