ch. 12 - Chapter 12 - Study Objectives After studying this...

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Financial Accounting - Chapter 12 1 Chapter 12 - Study Objectives After studying this chapter, you should be able to: 1 Indicate the primary purpose of the statement of cash  flows. 2 Distinguish among operating, investing, and financing  activities. 3 Explain the impact of the product life cycle on the  company’s cash flows. 4 Prepare a statement of cash flows using one of two  approaches: (a) the indirect method or (b) the direct  method. 5 Use the statement of cash flows to evaluate a company.
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Financial Accounting - Chapter 12 2 The Primary Purpose of the  Statement of Cash Flows To provide information about: Cash receipts, Cash payments, and  The net change in cash resulting from: Operating  Investing, and  Financing activities of a company during a period.
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Financial Accounting - Chapter 12 3 The Primary Purpose of the  Statement of Cash Flows In the statement of cash flows, activities involving cash  are reported in a format that reconciles the beginning  and ending cash balances.  Reporting the causes of changes in cash is useful  because investors, creditors, and others interested  parties want to know what is happening to a company's  most liquid resource, cash.
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Financial Accounting - Chapter 12 4 The Primary Purpose of the  Statement of Cash Flows The statement of cash flows provides answers to the  following important questions about an enterprise: Where did the cash come from during the period?  What was the cash used for during the period? What was the change in the cash balance during the  period? The statement of cash flows also provides clues about  whether a struggling company will survive or perish.
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Financial Accounting - Chapter 12 5 Operating Activities Operating activities include the cash effects of  transactions that create revenues and expenses and  enter into the determination of net income. Cash provided by operations is generally considered to  be the best measure of whether a company can  generate sufficient cash to continue as a going concern  and to expand. INVOLVE INCOME STATEMENT ITEMS
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Financial Accounting - Chapter 12 6 Investing Activities Investing activities include: Purchasing and disposing of investments  and productive long-lived assets using  cash and  Lending money and collecting the loans. INVOLVE INVESTMENTS AND LONG- TERM ASSET ITEMS
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Chapter 12 7 Financing Activities Financing activities include: Obtaining cash from issuing debt and  repaying the amounts borrowed and  Obtaining cash from stockholders and  paying them dividends. INVOLVE LONG-TERM LIABILITY AND 
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This note was uploaded on 04/14/2008 for the course ACCT 201 taught by Professor Romney during the Fall '06 term at San Diego.

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ch. 12 - Chapter 12 - Study Objectives After studying this...

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