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Question

Amy and Lester are the owners of The Hardware Store on Main Street in a large town. Without consulting Amy, Lester hires an accountant to prepare a formal Balance Sheet, Income Statement, and Statement of Cash Flows for The Hardware Store. Amy understands the importance of having a Balance Sheet and Income Statement, but she does not understand the importance of having a Statement of Cash Flows. Amy reasons that examining the Cash account in the General Ledger is sufficient to know where the cash came from and where it was spent.

Presume you are the accountant that was hired by Lester. Answer one (1) of the following questions to explain to Amy the purpose of the Statement of Cash flows: Please make your initial post your response to Amy.

What is the reporting objective of the Statement of Cash Flows?
There are two methods used to prepare the statement. Name each method along with the uses and limitations between the methods.
What steps should you use to prepare the statement?
What are the components of the statement? Are they placed in a particular order? If so, why?
Identify and explain the adjustment from net income to calculate cash flows from operating activities. In your answer, include the method and describe one component used in the calculation.