It involves three major steps: 1) Determining the change in cash. This is crucial in every forensic investigation because it leads the investigator to rationalize and understand the potential for under reported income with the purpose of evading taxes, hid assets, etc. The change is determined by establishing the difference between the beginning and the ending cash balance shown on the comparative balance sheets. 2) The second step, determining the cash flow from operating activities, involves analyzing the current year’s income statement and, in addition, the comparative balance sheets, and the selected transactions data. 3) Determining the cash flows from investing and financing activities.
Arriving at the net cash from operating activities it is necessary to disregard those transactions that did not have an effect on cash changes, which means that we must eliminate non-cash revenues and non-cash expenses from the calculation.
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