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CHPT_22_CLASS_OUTLINE+9+AM

CHPT_22_CLASS_OUTLINE+9+AM - OVERVIEW OF STATEMENT OF CASH...

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OVERVIEW OF STATEMENT OF CASH FLOWS (SCF) I. USES OF SCF II. FORMAT OF SCF III. PREPARATION OF SCF (INDIRECT METHOD) IV. OTHER ISSUES V. PROBLEMS
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I. USES OF STATEMENT OF CASH FLOWS - explains where cash came from & where it went Shows how close NI is to cash flows from operations (for assessing “quality of income”). Helps in assessing short-term liquidity & long-term solvency of firm Helps in assessing mgt’s investing & financing decisions Helps to explain changes in B/S accts Not influenced by actg estimates (such as amortization, accruals) – gives user “harder” data than I/S Help in assessing firm’s financial flexibility – will it be able to adjust to new circumstances, borrow more in future Helps in assessing firm’s ability to expand (the more cash from operations, the better) Helps users in predicting future cash flows Helps users predict whether firm will be able to pay interest & future dividends
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II. FORMAT OF SCF SHOWS CASH & CASH EQUIVALENTS (CCE) FROM (USED IN) -
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