Chapter 12 Notes

Chapter 12 Notes - Chapter 12 Statement of Cash Flows The...

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Chapter 12 Statement of Cash Flows The Primary Purpose of the Statement of Cash Flows Is . . . o To provide information about: o Cash receipts o Cash payments, and o The net change in cash resulting from: Operating, Investing, and Financing activities of a company during a period Questions the Statement of Cash Flow Answers o Where did the cash come from? o What was the cash used for? o What was the change in the cash balance? Why Report the Causes of Changes in Cash? o Because investors, creditors, and other interested parties want to know what is happening to a company’s most liquid asset, CASH Usefulness of the Statement of Cash Flow o The entity’s ability to generate future cash flows o The entity’s ability to pay dividends and meet obligations o The reason for the difference between net income and net cash provided (used) by operating activities o The cash investing and financing transactions during the period Operating Activities . . . o Include: o The cash effects of transactions that create revenues and expenses and o Enter into determination of net income Involve Income Statement Items! Investing Activities . . . o Include: o Purchasing and disposing of investments and productive long-lived assets using cash and o Lending money and collecting the loans Involve Investments and Noncurrent Asset Items! Financing Activities . . . o Include: o Obtaining cash from issuing debt and repaying the amounts borrowed and
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o Obtaining cash from stockholders, repurchasing shares, and paying dividends Involve Noncurrent Liability and Stockholders’ Equity Items! Types of Cash Flows – Operating Activities o Cash inflows: o From sale of goods or services o From return on loans (interest received) and on equity securities (dividends received) o Cash outflows: o To suppliers for inventory o To employees for services o To government for taxes o To lenders for interest o To others for expenses Types of Cash Flows – Investing Activities o Cash inflows: o From sale of property, plant, equipment o From sale of debt or equity securities of other entities o From collection of principal on loans to other entities o Cash outflows: o To purchase property, plant, and equipment o To purchase debt or equity securities of other entities
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This note was uploaded on 04/17/2008 for the course MGMT 30A taught by Professor Tian during the Winter '08 term at UC Irvine.

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Chapter 12 Notes - Chapter 12 Statement of Cash Flows The...

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