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Intermediate Accounting

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21 Statement of Cash Flows Revisited Overview There is not much that is new in this chapter. Rather, this chapter draws on what was learned in Chapter 5 and subsequent chapters with respect to the statement of cash flows. It then demonstrates some comprehensive problems involving this third financial statement. At the time when you learned about the statement of cash flows, back in Chapter 5, some of the items that appear on a statement of cash flows had not been introduced. Hence, the material learned in Chapter 5 was a bit simplified. New items, such as the amortization for a bond premium or discount, treasury stock, or the classification of securities (available for sale, trading, held to maturity) were not yet covered—yet they all impact the statement of cash flows. The six-step process for preparing the statement of cash flows is gone over, once again, but with more details surrounding the above items and more. Also, the differences in the U.S. accounting standards for the statement of cash flows and the GAAP of other countries are discussed. Finally, the chapter gives you a peak at the final chapter in the book, dealing with financial statement analysis, by going through an analysis of a statement of cash flows for a complex entity. You are reaching the end of the book so expect a lot of comprehensive, synthesizing kind of problems in this chapter and beyond. You now have the background knowledge to be able to analyze and understand most of the financial accounting questions raised. Learning Objectives Refer to the Review of Learning Objectives at the end of the chapter. It is crucial that this section of the chapter is second nature to you before you attempt the homework, a quiz, or exam. This important piece of the chapter serves as your CliffsNotes or “cheat sheet” to the basic concepts and principles that must be mastered.
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21-2 Chapter 21 If after reading this section of the chapter you still don’t feel comfortable with all of the Learning Objectives covered, you will need to spend additional time and effort reviewing those concepts that you are struggling with. The following “Tips, Hints, and Things to Remember” are organized according to the Learning Objectives (LOs) in the chapter and should be gone over after reading each of the LOs in the textbook. Tips, Hints, and Things to Remember LO1 – Prepare a complete statement of cash flows and provide the required supplemental disclosures. How? Remember that the indirect method is the one most widely used. Hence, you’ll want to focus your efforts on studying how to prepare an indirect method statement of cash flows. The Financing Activities and Investing Activities sections are the same under either method. For the Operating Activities section, let’s go through a little refresher course on whether you add or subtract changes in account balances.
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