Module Five Summary Notes_1.doc - CHAPTER 21 Statement of...

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College Accounting, Chapters 1-27
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Chapter 23 / Exercise 16
College Accounting, Chapters 1-27
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CHAPTER 21 Statement of Cash Flows Revisited Overview The objective of financial reporting is to provide investors and creditors with useful information, primarily in the form of financial statements. The balance sheet and the income statement – that have been the focus of your study in earlier chapters – do not provide all the information needed by these decision makers. In this chapter, you will learn how the statement of cash flows, prescribed by SFAS 95, fills the information gap left by the other financial statements. The statement lists all cash inflows and cash outflows during each reporting period, and classifies them as cash flows from (a) operating, (b) investing, or (c) financing activities. Investing and financing activities that do not directly affect cash also are reported. Learning Objectives 1. Explain the usefulness of the statement of cash flows. 2. Define cash equivalents. 3. Determine cash flows from operating activities by the direct method. 4. Determine cash flows from operating activities by the indirect method. 5. Identify transactions that are classified as investing activities. 6. Identify transactions that are classified as financing activities. 7. Identify transactions that represent noncash investing and financing activities. 8. Prepare a statement of cash flows with the aid of a spreadsheet or T-accounts. Lecture Outline I. Investors and creditors analyze the prospects of receiving a cash return from their dealings with a firm. A. Cash flows to investors and creditors depend on the corporation generating cash flows to itself. (T21-1) B. Decision makers rely heavily on the information reported in periodic financial statements to project a company’s cash generating ability. C. Some important questions are not easily answered from the information the balance sheet and income statement provide. II. The statement of cash flows fills an information gap left by the balance sheet and the income statement. A. It presents information about cash flows that the other statements either (a) do not provide or (b) provide only indirectly. B. Cash continuously flows into and out of an active business. C. The concept of the statement is quite simple: It provides a list of the cash inflows and outflows that occurred during the reporting period. Before seeing how the statement of cash flows is prepared from the information typically available for this purpose, the basic structure and composition of the statement is overviewed in Graphic 21-2. (T21-2) ACC 307 Module Five 1
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College Accounting, Chapters 1-27
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Chapter 23 / Exercise 16
College Accounting, Chapters 1-27
Heintz/Parry
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III. The requirement that companies present the statement of cash flows is relatively recent. A. During the early 1900s and continuing into the mid-1930s, the cash basis was a widely used means of financial reporting. B. Early efforts to create the standard of accrual accounting intentionally suppressed the widespread practice of cash flow reporting.

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