Chapter 17 - Chapter 17 Statement of Cash Flows LO 1...

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Chapter 17 “Statement of Cash Flows”
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LO 1 – Purposes and Uses of the Statement of Cash Flows Statement of Cash Flows: shows how a company’s operating , investing , and financing activities affected cash during an accounting period Explains the net increase (or decrease) in cash during the accounting period
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LO 1 Cash includes cash and cash equivalents Cash Money on hand Deposits in company checking accounts
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LO 1 Cash equivalents Short-term, highly liquid investments including Money market accounts Commercial paper U.S. Treasury bills Combined with the Cash account on the statement of cash flows
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LO 1 Purpose of Statement of Cash Flows: to provide information about a company’s cash receipts and cash payments during an accounting period
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LO 1 Internal Uses of the Statements of CFs: Management uses the statement of cash flows to Assess liquidity Determine if short-term financing is necessary Determine dividend policy Decide whether to raise or lower dividends Evaluate the effects of investment and financing decisions Plan for investing and financing needs
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LO 1 External Uses of the Statement of CFs: Investors and creditors use the statement of cash flows to assess a company’s ability to Manage cash flows Generate positive future cash flows Pay its liabilities Pay dividends and interest Anticipate its need for additional financing
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LO 1 Classification of CFs: The statement of cash flows classifies cash receipts and cash payments into categories 1. Operating activities 2. Investing activities 3. Financing activities
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Classification of Cash Inflows and Cash Outflows
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LO 1 Operating Activities: include the cash effects of transactions and other events that affect the income statement In effect, items on the income statement are changed from an accrual to a cash basis
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LO 1 Operating Activities: Cash inflows Cash receipts from customers for goods and services Interest and dividends received on loans and investments Sales of trading securities Cash outflows Cash payments for Wages • Goods and services Expenses • Interest Taxes • Purchases of trading securities
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LO 1 Investing Activities: include the cash effects of transactions that affect long-term assets Acquiring and selling long-term assets Acquiring and selling marketable securities other than trading securities or cash equivalents Making and collecting loans
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LO 1 Investing Activities: Cash inflows Cash receipts from selling long-term assets and marketable securities Collecting loans Cash outflows Cash expended for purchases of long-term assets and marketable securities Cash loaned to borrowers
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LO 1 Financing Activities: include the cash effects of transactions that affect long-term liabilities and stockholders’ equity Obtaining resources from stockholders Returning resources to stockholders and providing them with a
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This note was uploaded on 02/07/2011 for the course BUS 209 taught by Professor Z.gougoumanova during the Spring '11 term at American University in Bulgaria.

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Chapter 17 - Chapter 17 Statement of Cash Flows LO 1...

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