Chapter 23 (Statement of Cash Flows)

Chapter 23 (Statement of Cash Flows) - 1. Describe the...

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Unformatted text preview: 1. Describe the purpose of the statement of cash flows. 2. Identify the major classifications of cash flows. 3. Differentiate between net income and net cash flows from operating activities. 4. Contrast the direct and indirect methods of calculating net cash flow from operating activities. 5. Determine net cash flows from investing and financing activities. 6. Prepare a statement of cash flows. 7. Identify sources of information for a statement of cash flows. 8. Discuss special problems in preparing a statement of cash flows. 9. Explain the use of a worksheet in preparing a statement of cash flows. Learning Objectives Statement of Cash Flows Preparation of the Statement Special Problems in Statement Preparation Use of a Worksheet Usefulness Classification of cash flows Format of statement Steps in preparation Examples Sources of information Indirect vs. direct method Adjustments similar to depreciation Accounts receivable (net) Other working capital changes Net losses Gains Stock options Postretirement benefit costs Extraordinary items Significant noncash transactions Preparation of worksheet Analysis of transactions Preparation of final statement Primary purpose: To provide information about a companys cash receipts and cash payments during a period. Secondary objective: To provide cash-basis information about the companys operating, investing, and financing activities. Section 1 - Preparation of the Statement of Cash Flows Usefulness of the Statement of Cash Flows Provides information to help assess: 1. Entitys ability to generate future cash flows. 2. Entitys ability to pay dividends and obligations. 3. Reasons for difference between net income and net cash flow from operating activities. 4. Cash and noncash investing and financing transactions. Classification of Cash Flows Income Statement Items Operating Activities Generally Long- Term Asset Items Investing Activities Generally Long- Term Liability and Equity Items Financing Activities The term Cash = Cash and cash equivalents . The basis recommended by the FASB for the statement of cash flows is actually cash and cash equivalents. Cash equivalents are short-term, highly liquid investments that are both: (a) readily convertible to known amounts of cash, and (b) so near their maturity that they present insignificant risk of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under this definition. Examples of cash equivalents are Treasury bills, commercial paper, and money market funds purchased with cash that is in excess of immediate needs. Cash and Cash Equivalent Classification of Cash Flows Classification of Typical Inflows and Outflows Classification of Cash Flows Income Statement Items Classification of Typical Inflows and Outflows Classification of Cash Flows Generally Long-Term Asset Items Classification of Typical Inflows and Outflows Classification of Cash Flows Generally Long- Term Liability and Equity Items Format of the Statement of Cash Flows...
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This note was uploaded on 01/18/2011 for the course ACC 5115 taught by Professor Mitra during the Winter '10 term at Wayne State University.

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Chapter 23 (Statement of Cash Flows) - 1. Describe the...

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