CHAPTER 24 Statement of Cash Flows

CHAPTER 24 Statement of Cash Flows - Chapter 24 Statement...

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Chapter 24 Statement of Cash Flows LECTURE OUTLINE The material in this chapter can be covered in three class sessions. Students often have difficulty in adjusting transactions recorded on an accrual basis to a cash basis income statement. Illustration 24-7 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.
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B. Classification of Cash Flows and Format of Statement of Cash Flows. Teaching Tip Illustration 24-1 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. Teaching Tip
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CHAPTER 24 Statement of Cash Flows - Chapter 24 Statement...

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