Pratt_7e_Chapter14 - 1 Chapter 14 Chapter Statement of Cash...

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2 Chapter 14: Chapter 14: Statement of Cash Flows Statement of Cash Flows Required for financial statements by SFAS 95 (1987). Primary purpose is to provide relevant information about cash receipts and cash disbursements of the company during the period. Serves to complement the other financial statements. Focus is on cash flows, not income. Reconciles the balance sheet and the income statement.
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3 Content of Statement of Cash Flows Content of Statement of Cash Flows Explains change in cash and cash equivalents. Cash equivalents are defined as short-term, highly liquid investments near to maturity. Examples of cash equivalents are Treasury bills and money market funds. Format of SCF includes the following three sections: - cash flow from operating activities. - cash flow from investing activities. - cash flow from financing activities.
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5 Cash Flows from Operating Activities Cash Flows from Operating Activities CF from operating activities is based on the income statement, and converts income activity to a cash basis. There are two formats for the presentation of CF from operating activity: direct method : this technique shows cash received from customers and cash paid to various entities for operating activities. indirect method : this technique starts with net income and makes adjustments to net income to convert it to a cash basis.
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6 Cash Flows from Operating Activities Cash Flows from Operating Activities If the direct method is used, the indirect method must be presented in a supplementary schedule. The direct method is more informative, but the vast majority of companies present only the indirect method. FASB is considering a change to require the direct method.
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7 Cash Flows from Investing Activities Cash Flows from Investing Activities CF from investing activities explain the changes in cash from the purchase or sale of the company’s (primarily) long-term assets . Examples of investing activity includes: cash paid for purchase of equipment, land, buildings, marketable securities (available-for-sale and equity), intangible assets, and most other long term assets. cash received from sale of equipment, land, buildings, marketable securities (available-for-sale and equity), intangible assets, and most other long term assets. cash paid for issue of non-trade notes receivable ( both short-term and long-term ). cash received for repayment on non-trade notes receivable ( both short-term and long-term ).
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8 Cash Flows from Investing Activities Cash Flows from Investing Activities General rule for investing activity: cash flows for purchase and sale of long-term assets. Exceptions to the rule:
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This note was uploaded on 09/06/2010 for the course BUSINESS ACG 6025 taught by Professor Karenlivingstone during the Fall '10 term at University of South Florida.

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Pratt_7e_Chapter14 - 1 Chapter 14 Chapter Statement of Cash...

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