ACC116A Chapter 11 Fall 2016 - CHAPTER 12 Accountin g for...

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CHAPTER 12Accounting for Cash Flows
Statement of Cash Flows (S.C.F.)What’s it used for(purpose)?Why bother (importance)?What’s cash anyway? (definition of cash)
How does a company obtain its cash?Where does a company spend its cash?What explains the change in the cash balance?What does the S.C.F. tell mePurpose?12-3
How did the business fund its operations?Does the business have sufficient cash to pay its debts as they mature?Why do I care about the S.C.F?Did the business borrow any funds or repay any loans?Did the business make any dividend payments?Importance12-4
12-5What’s cashanyway?Dfn: CashWHAT IS CASH? CurrencyCash EquivalentsS/T investments, which are:highly liquid investmentseasy to convert to cashlittle risk (e.g T-Bill)
12-6The THREE Sections of the S.C.F.1.Operating activities: cash receipts and cash payments for transactions relating to revenue and expense activities2.Investing activities: cash transactions involving the purchase and sale of long-term assets and current investments3.Financing activities: inflows and outflows of cash resulting from the external financing of a business
Illustration 11.2—Operating, Investing, and Financing Activities11-7
Information Sources for Preparing the Statement of Cash FlowsIncome statementBalance sheetsDetailed accounting records
Illustration 11.4—Relationship of theIncome Statement and Balance Sheet to the Statement of Cash Flows11-9
“Non-Cash” Transactions: Investing & Financing Activities12-10When to include a separate disclosure:Paying for new equipment in exchange for stock (investing financing)Retirement of debt by issuing equity securities (investing financing)Conversion of preferred stock to common stock (financingfinancing)Not on S.C.F.!!
Format of theStatement of Cash Flows12-11
Operating Activities—Indirect and Direct MethodsDiffer in presentation format for operating activitiesBoth methods report investing, financing, and noncash activities identicallyBegin with net income and then list adjustments to net income in order to arrive at operating cash flowsMost popular methodEasier and less costlyAdjust the items on the income statement to directly show the cash inflows and outflows from operationsConceptually better methodMore difficult and more costlyIndirect MethodDirect Method
Net IncomeCash Flows from Operating

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