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Unformatted text preview: 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. If course timing is restrictive, you may want to cover only one of the two methods of preparing the statement of cash flows. The indirect method is the most commonly used method for reporting cash flows. It is very easy to cover only this method since the entire statement of cash flows (including operating, investing, and financing activities) is presented in Objective 2. The direct method reports each of the major categories of operating cash receipts and cash payments. If you choose to cover only the direct method, be aware that Objective 3 only illustrates the operating activities section of the statement of cash flows. You will still need to refer students to the information on financing and investing activities in Objective 2. After studying the chapter, your students should be able to: 1. Describe the cash flow activities reported in the statement of cash flows. 2. Prepare a statement of cash flows, using the indirect method. 3. Prepare a statement of cash flows, using the direct method. STUDENT FAQS • Why do most preparers of cash flow statements prefer the indirect method? • Who cares about the cash flow statement since it only tells the reader where the company’s money came from and where the company’s money was spent? • Why does the cash flow statement have to equal the change in the cash account? 265 This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher. 266 Chapter 16 Statement of Cash Flows This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher. • Why does only the Operating section of the cash flow statement change when preparing the statement under the two different methods? • I just don’t see a need for the cash flow statement. Can you explain why we need this statement at all? • If the cash flow statement is so important and helpful, why don’t we prepare all the financial statements on a cash basis? • Why do we have to prepare a schedule of important non-cash items to accompany this statement? After all this is the statement that is based on the cash inflows and outflows. • Why are there two methods to prepare the statement of cash flows?...
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- Spring '10
- Cash Flow Statement, Analytic Analytic Analytic Analytic Analytic Analytic Analytic Analytic Analytic Analytic Analytic Analytic Analytic Analytic AICPA