ORIE ch 4 outline - ORIE 350 CH 4 OUTLINE CH 4—STATEMENT...

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ORIE 350 CH 4 O UTLINE C H 4—S TATEMENT OF C ASH F LOWS : R EPORTING THE E FFECTS OF O PERATING , I NVESTING INANCING A CTIVITIES ON C ASH F LOWS 1. N EED FOR A S TATEMENT OF C ASH F LOWS 1. How can a profitable firm run out of cash? 1. Net income for a particular period does not equal cash flow from operations 1. Firms recognize revenue at time of sale even though they may receive cash prior to, coincident with or after the time of sale 2. Firms receive cash inflows & disburse outflows because of investing and financing activities which the income statement does not report directly, although it provides hints of such activities 1. A profitable firm may generate positive cash flow from operations and still have cash shortages (firms pay dividends to shareholders, short/long term borrowing comes due, PPEcosts) 2. O VERVIEW OF S TATEMENT OF C ASH F LOWS 1. Statement explains the reasons for the change in cash between balance sheet dates 2. Statement classifies the reasons for change in cash as an operation or
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ORIE ch 4 outline - ORIE 350 CH 4 OUTLINE CH 4—STATEMENT...

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