Chapter_23_Lecture

Chapter_23_Lecture - Chapter 23 LECTURE To my experience students often have difficulty in adjusting transactions recorded on an accrual basis to a

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Chapter 23 LECTURE To my experience students often have difficulty in adjusting transactions recorded on an accrual basis to a cash basis income statement. Illustration 23-7 provides a numerical example of calculating net cash flow from operating activities under both the indirect and direct methods. A. Purposes and Uses of Statement of Cash Flows. 1. Purposes of the statement. a. To provide information about the cash receipts and cash payments of an entity during a period. Important information for financial statement users because many feel that accrual accounting does not present true picture. b. To summarize the operating, investing, and financing activities of the business. 2. Uses of the statement. a. Assessing the entity's ability to generate positive future cash flows. b. Assessing the entity's ability to pay dividends and meet obligations. c. Reconciling the difference between net income and net cash flow from operating activities. d. Assessing the cash and noncash investing and financing transactions during the period. B. Classification of Cash Flows and Format of Statement of Cash Flows. Illustration 23-1 identifies the major classifications of cash flows and lists some typical cash receipts and payments under each classification. 1. Operating activities: transactions related to the calculation of net income. 2. Investing activities: transactions related to long-term assets. 3. Financing activities: transactions related to liabilities and stockholders' equity. 4. Format of the statement.
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Illustration 23-2 provides a skeleton format of a statement of cash flows (indirect method). C. Preparation of the Statement of Cash Flows. 1. Sources of information. a. Comparative balance sheets. b.
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This note was uploaded on 02/12/2010 for the course ACCTG 100A taught by Professor Farimafakoor during the Spring '09 term at Golden Gate.

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Chapter_23_Lecture - Chapter 23 LECTURE To my experience students often have difficulty in adjusting transactions recorded on an accrual basis to a

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