17 - Presentation Deck - ACC 212: PRINCIPLES OF ACCOUNTING...

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ACC 212: PRINCIPLES OF ACCOUNTING CHAPTER 17: STATEMENT OF CASH FLOWS PRESENTATION DECK Prepared by: Jill Mitchell, Assistant Professor, NOVA Reference: Weygandt, Jerry, Kieso, and Kimmel. Accounting Principles Unless noted, illustrations are from the referenced text.
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Chapter 17-2 1. Statement of Cash Flows: Usefulness and Format 2. Preparing the Statement of Cash Flows—Indirect Method 2.1 Prepare a statement of cash flows using the indirect method. 1.1 Be able to indicate the usefulness of the statement of cash flows. 1.2 Distinguish between operating, investing, and financing activities. 1.3 Know the primary difference between the indirect and direct methods of preparing the statement of cash flows. 17: Statement of Cash Flows
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Chapter 17-3 Statement of Cash Flows: Introduction Balance Sheet, Income Statement and Statement of Retained Earnings only provide limited information on a company’s cash position. The Statement of Cash Flows presents a detailed summary of where cash came from and how it was used (cash receipts and cash payments). Accounting is based on accrual concepts that report revenues as earned and expenses as incurred rather than cash received and cash paid. Therefore, the Statement of Cash Flows explains why net income does NOT equal the change in cash on the balance sheet. The Statement of Cash Flows does NOT help assess a company’s ability to generate future income. We can think of the Statement of Cash Flows as the communicating link between the accrual based Income Statement and the cash reported on the Balance Sheet. 1.1 Be able to indicate the usefulness of the statement of cash flows
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Chapter 17-4 1.1 Be able to indicate the usefulness of the statement of cash flows Provides information to help assess: 1. Entity’s ability to generate future cash flows (NOT net income!) 2. Entity’s ability to pay dividends and obligations. 3. Reasons for difference between net income and net cash provided (used) by operating activities. 4. Cash investing and financing transactions during the period. Definition: The statement of cash flows reports the cash receipts, cash payments, and net change in cash resulting from operating, investing, and financing activities during a period. It provides information about the cash receipts and cash payments during a period. Usefulness of the Statement of Cash Flows Does NOT help assess an entity’s ability to generate future income!
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Chapter 17-5 The design of the Statement of Cash Flows assists managers and analysts. The Statement of Cash Flows may help answer the following questions: Will the company have enough cash to pay its short term debts to suppliers and other creditors without additional borrowing? Is the company adequately managing its accounts receivable and
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This note was uploaded on 02/28/2011 for the course ACC 212 taught by Professor Mitchell during the Spring '11 term at Northern Virginia Community College.

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17 - Presentation Deck - ACC 212: PRINCIPLES OF ACCOUNTING...

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