Chapter 16 (2)

Chapter 16 (2) - 16-1Reporting the Statement of Cash

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Unformatted text preview: 16-1Reporting the Statement of Cash FlowsChapter1616-2Learning Objective 1Understand the purpose of a statement of cash flows.US: since 1988HK: since 199216-3The Usefulness of the Statement ofCash FlowsExplains how a companys cash was generated and how that cash was used.Shows the companys liquidity position.Adds credibility to accounting earnings.16-4Example: A statement in an annual report of AT&TStrong cash flows from operations permitted us to continue efforts toward increased financial flexibility. We redeemed $830,000 million of stock and retired $14 million of long-term debt. Our external financing was limited to $343 million. Consequently, for the second consecutive year, we have reduced our utilization of external sources of financing.16-5Example: Concerns about accounting credibilityfinancial analysis can be plagued by Games accountants play in deriving the earnings number the so-called sins of accrual accounting. the effect of these actions is to either increase current profits or hide them for a later date. It is important for analysts to understand the effects of these games on cash flows.16-6Learning Objective 2Learning Objective 2Recognize the different types of information reported in the statement of cash flows.16-7CashCurrencyCash EquivalentsShort-term, highly liquid investments.Readily convertible into cash.So near maturity that market value is relatively stable.Measurement of Cash Flows16-8Cash equivalentsCash equivalents: Short-term, highly liquid investments that can be converted easily into cash.Examples:Treasury BillsMoney Market FundsCommercial PaperDefinition can be found at http://www.investorwords.com16-9The Flow of CashCash receivedfrom operatingactivitiesCash receivedfrom investingactivitiesCash receivedfrom financingactivitiesCash and cashequivalentsCash paidfor operatingactivitiesCash paidfor investingactivitiesCash paidfor financingactivitiesinflowsoutflows16-10Classifications of Cash FlowsOperating ActivitiesOperating ActivitiesPrincipal income-producing activities of the company that are not investing or financing activities.Investing ActivitiesInvesting ActivitiesTransactions and events that involve the purchase and sale of long-term assets, such as property, plant, equipment, and other assets that are not held for resale, and the lending and collecting of loans....
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This note was uploaded on 04/18/2011 for the course BUSI 1002 taught by Professor Liu during the Fall '10 term at HKU.

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Chapter 16 (2) - 16-1Reporting the Statement of Cash

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