WRD_ch16

Accounting

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Unformatted text preview: 11-116-1Statement of Cash Flows1611-216-2Learning Objective 13-1Describe the nature of the adjusting process.Learning Objective 13-1Describe the nature of the adjusting process.Insert Chapter ObjectivesStatement of Cash Flows1Describe the cash flow activities reported in the statement of cash flows.2Prepare a statement of cash flows, using the indirect method.After studying this chapter, you should be able to:16-23Prepare a statement of cash flows, using the direct method.11-316-316-31Describe the cash flow activities reported in the statement of cash flows11-416-4The statement of cash flowsreports a firm’s major cash inflows and outflows for a period. It provides useful information about a company’s ability to do the following:1.Generate cash from operations1.Maintain and expand its operating capacity1.Meet its financial obligations1.Pay dividends111-516-5Reporting Cash FlowsThe statement of cash flows reports cash flows from three types of activities:1.Cash flows from operating activitiesare cash flows from transactions that affect net income.2.Cash flows from investing activitiesare cash flows from transactions that affect the investmentsin noncurrent assets of the company.3.Cash flows from financing activitiesare cash flows from transactions that affect the equity and debt of the company.111-616-6Cash Flows1Exhibit 111-716-7Cash Flows from Operating ActivitiesThe direct methodreports the sources of operating cash and the uses of operating cash.111-816-8The indirect methodreports the operating cash flows by beginning with net income and adjusting it for revenues and expenses that do not involve the receipt or payment of cash.111-916-9The primary advantage of the indirect method is that it reconciles the difference between net income and net cash flows from operations. Also, the indirect method is less costly to use than the direct method.Over 99% of companies use the indirect method.111-1016-10Cash Flows from Operations: Direct and Indirect Methods—NetSolutionsThe same1Exhibit 211-1116-11Cash Flows from Investing Activities•Cash inflowsfrom investing activitiesnormally arise from selling fixed assets, investments, and intangible assets.•Cashoutflowsfrom investing activitiesnormally include payments to acquire fixed assets, investments, and intangible assets.111-1216-12•Cash inflowsfrom financing activitiesnormally arise from issuing debt or equity securities.•Cashoutflowsfrom financing activitiesnormally include paying cash dividends, repaying debt, and acquiring treasury stock. Cash Flows from Financing Activities111-1316-13Noncash investing and financing activitiesare transactions that do not directly affect cash. The effect of such transactions is recorded in a separate schedule that appears at the bottom of the statement of cash flows....
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WRD_ch16 - 11-116-1Statement of Cash Flows1611-216-2Learning Objective 13-1Describe the nature of the adjusting process.Learning Objective

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