cash_flows.pdf - EM 501 Management Accounting and...

EM 501
Management Accounting and Engineering
Economics
Statement of Cash Flows
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Ismail Serdar Bakal
Middle East Technical University
Department of Industrial Engineering
(METU/IE) EM 501 Statement of Cash Flows 1 / 14

Statement of Cash Flows
Balance Sheet and Income Statement provide only limited
information about company’s cash flows (receipts and payments)
Comparative Balance Sheet
increase in property, plant, equipment during the year
do not show how additions are financed
Income Statement
shows net income
do not indicate the cash generated by the operating activities
Statement of Cash Flows
explains the net increase (decrease) in cash for the corporation
during the accounting period
reports net change in cash resulting from
operating
investing
financing activities.
(METU/IE) EM 501 Statement of Cash Flows 2 / 14

Statement of Cash Flows
We may be interested in cash flow to answer vital questions such
as:
Where was money obtained?
Where was money put and for what purpose?
Is the company’s cash position sound and what effect will it have on
the market price of the stock?
How was the expansion in plant and equipment financed?
Under accrual basis accounting net income will not generally
indicate net cash flow from operating and other activities
Statement of Cash Flows shows all the transactions affecting cash
(METU/IE) EM 501 Statement of Cash Flows 3 / 14