review14 - CHAPTER 14 The Statement of Cash Flows...

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CHAPTER 14 The Statement of Cash Flows 0REVIEWING THE CHAPTER Objective 1: Describe the principal purposes and uses of the statement of cash flows, and identify its components. 10. The statement of cash flows focuses on a company’s liquidity and contains much information not found in the income statement, balance sheet, or statement of stockholders’ equity. It explains the changes in cash and cash equivalents from one accounting period to the next by showing the cash inflows and outflows from a company’s operating, investing, and financing activities during an accounting period. For the statement of cash flows, cash is defined as including both cash and cash equivalents. Cash equivalents are short-term, highly liquid investments, such as money market accounts, commercial paper (short-term notes), and U.S. Treasury bills. Marketable securities are not considered cash equivalents. 20. The principal purpose of the statement of cash flows is to provide information about a company’s cash receipts and cash payments during an accounting period. A secondary purpose is to provide information about a company’s operating, investing, and financing activities. 30. Management uses the statement of cash flows to assess the company’s debt-paying ability, to determine dividend policy, and to plan for investing and financing needs. Investors and creditors use the statement to assess such things as the company’s ability to manage cash flows, to generate positive future cash flows, to pay its liabilities, to pay dividends and interest, and to anticipate its need for additional financing. 40. The statement of cash flows classifies cash receipts (inflows) and cash payments (outflows) as stemming from operating, investing, and financing activities. The statement may be accompanied by a schedule of significant noncash transactions.0 a0. Operating activities include receiving cash from the sale of goods and services, receiving interest and dividends on loans and investments, receiving cash from the sale of trading securities, and making cash payments for wages, goods and services,
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This note was uploaded on 06/10/2009 for the course ACG 2021 taught by Professor Magoulis,b during the Spring '08 term at Pasco-Hernando Community College.

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review14 - CHAPTER 14 The Statement of Cash Flows...

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