WRD_IMCh16_10_2010

WRD_IMCh16_10_2010 - chapter Statement of Cash Flows...

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chapter 16 Statement of Cash Flows ______________________________________________ OPENING COMMENTS This chapter demonstrates that the statement of cash flows is necessary for a complete picture of a company’s financial condition. Both the direct and indirect methods of preparing a statement of cash flows are presented in your text. For the purpose of the test, you are only responsible to know the indirect method since this method is the most commonly used method for reporting cash flows. As always, remember to download the TM for this chapter posted on Module. After studying the chapter, you should be able to: 1. Understand the cash flow activities reported in the statement of cash flows. 2. Prepare a statement of cash flows, using the indirect method. OBJECTIVE 1 Understand the cash flow activities reported in the statement of cash flows. KEY TERMS Cash Flows from Financing Activities Direct Method Cash Flows from Investing Activities Indirect Method Cash Flows from Operating Activities Statement of Cash Flows Cash Flow per Share Below, you will find a writing exercise to introduce the statement of cash flows. The exercise asks you to evaluate financial data from two companies. The goal is to point out that a firm’s profits do not paint a total picture of its operations; cash flow data is also needed. Follow the writing exercise (TM 16-1) by reviewing TM 16-2, which lists the benefits of a statement of cash flows. WRITING EXERCISE — Importance of the Statement of Cash Flows TM 16-1 presents financial information taken from the accounting records of two companies. These companies have the same net incomes but very different cash flows. Even though both companies have
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Chapter 16 Statement of Cash Flows the same sales, Company B did not collect as much cash from its customers. In addition, Company B did not invest as much cash in fixed assets; this could inhibit future growth. Statement of Cash Flows TMs 16-3 and 16-4 list the three sections of the statement of cash flows and the transactions included in each section. TM 16-5 defines the content of the schedule of noncash investing and financing activities.
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This note was uploaded on 04/13/2010 for the course ACTG 1B a taught by Professor 2 during the Spring '10 term at Foothill College.

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WRD_IMCh16_10_2010 - chapter Statement of Cash Flows...

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