ch12 - CHAPTER 12 Statement of Cash Flows CHAPTER OVERVIEW...

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CHAPTER 12 Statement of Cash Flows CHAPTER OVERVIEW In this chapter you will learn about the statement of cash flows, including the three types of activities of a business, the primary purpose of the statement, and how to prepare the statement using the direct or the indirect method. You will learn how to evaluate a company using the statement of cash flows and about the impact of the product life cycle on a company's cash flows. REVIEW OF SPECIFIC STUDY OBJECTIVES SO1. Indicate the usefulness of the statement of cash flows. ¿ The information in a statement of cash flows should help users of the statement assess the entity’s ability to generate future cash flows , its ability to pay dividends and meet obligations , the reasons for the difference between net income and net cash provided or used by operating activities , and the cash investing and financing transactions during the period . ¿ The statement answers the following questions : 1. Where did cash come from? 2. What was cash used for? 3. What was the change in the cash balance? SO2. Distinguish among operating, investing, and financing activities. ¿ Operating activities , the most important category because it shows the cash provided or used by company operations, include the cash effects of transactions that create revenues and expenses and thus enter determination of net income.
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Kimmel Accounting: Tools for Business Decision Making 12-2 ¿ Investing activities include purchasing and disposing of investments and productive long-lived assets using cash and lending money and collecting the loans . ¿ Financing activities include obtaining cash from issuing debt and repaying the borrowed amounts and obtaining cash from stockholders, repurchasing shares, and paying them dividends . ¿ In general: Operating activities involve income statement items and current assets and current liabilities . Investing activities involve investments and other long-term asset items . Financing activities involve long-term liabilities and stockholders' equity items . ¿ A company may also have significant noncash activities , such as the issuance of common stock for the purchase of assets , the conversion of bonds into common stock , the issuance of debt to purchase assets , and the exchange of plant assets . These are not reported in the body of the statement of cash flows but instead are in a separate schedule at the bottom of the statement or in a separate note or supplementary schedule to the financial statements . Reporting of such activities satisfies the full disclosure principle. ¿ With respect to format of the statement , cash flows from operating activities are reported first, followed by cash flows from investing and financing activities . Individual inflows and outflows from investing and financing activities are reported
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ch12 - CHAPTER 12 Statement of Cash Flows CHAPTER OVERVIEW...

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