Accounting 312- ch 6 - Accounting 312 Chapter 6 The...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Accounting 312 Chapter 6 The Statement of Cash Flows I. The Purpose of the Statement of Cash Flows: Purpose and Format A. Purpose of the Statement of Cash Flows 1. provide information about cash receipts, cash payments and the net change in cash resulting from the operating, investing and financing activities of a company during the period a. these activities involving cash are reported in a format that reconciles the beg and ending cash balances 2. useful bc investors and creditors want to know what is happening to a company’s most liquid resource- its cash 3. answers: Where did the cash come from, what was the cash used for, what was the change in the cash balance B. Classification of Cash Flows 1. operating activities: include the cash effects of transactions that create revenues and expenses; they thus enter into the determination of net income a. most important because it shows the cash provided and used b company operations i. a co must generate cash from its operating activities in order to continue as a going concern and to expand b. involve income statement items 2. investing activities: include purchasing and disposing of investments and productive long-lived assets using cash, and lending money and collecting the loans a. involve cash flows resulting from changes in investments and long term asset items 3. financing activities: include obtaining cash from issuing debt and repaying the amts borrowed, and obtaining cash from stockholders and paying them dividends a. involve cash flows resulting from changes in long term liability and stockholders’ equity 4. some cash flows relating to investing or financing activities are classified as operating expenses (ie: receipts of investment revenue and payments of interest to lenders) a. this is because these items are reported in the income statement where results of operations are shown C. Significant Non-Cash Activities 1. issuance of common stock to purchase assets 2. conversion of bonds into common stock 3. issuance of debt to purchase assets 4. exchanges of plant assets *companies do not report in the body of the statement of cash flows significant financing and investing activities that do not affect cash (reported in separate schedule or a separate note- satisfies full disclosure principle) D. Format of the Statement of Cash Flows 1. the cash flows from operating activities section always appears first, followed by the investing activities followed by financing activities 2. the individual inflows and outflows from investing and financing activities are reported
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/23/2011 for the course ACCOUNTING acc312 taught by Professor Halwhite during the Fall '10 term at University of Michigan.

Page1 / 4

Accounting 312- ch 6 - Accounting 312 Chapter 6 The...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online