Chapter 12 notes

Chapter 12 notes - Chapter 12 Class Notes Reporting and...

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Introduction: The primary purpose of the Statement of Cash Flows is to provide answers to two questions that can’t be answered by the other statements: (1) Where did cash come from? (2) Where did cash go? This statement also explains the net change in cash during the period. What Information is Reported in the Statement of Cash Flows? Cash – currency, coins, money orders, and checks on hand, as well as funds on deposit with financial institutions Cash Equivalents – short-term (90 days or less), highly liquid investments that can easily be converted to cash (US Treasury bills, money market accounts, and commercial paper) Major Classifications of Cash Flows : Operating Activities Investing Activities Financing Activities Chapter 12 Class Notes Reporting and Interpreting the Statement of Cash Flows Compiled by: Janice H. Fergusson, CPA Certain Materials used with permission of The McGraw-Hill Companies, Inc.
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ACCT 225 – Fall 2008 Page 2 of 13 Chapter 12 Operating Activities Cash effect of transactions and events that enter into the determination of ______________________________. In effect, the income statement is converted from accrual basis to cash basis Investing Activities Cash effect of transactions and events that relate to buying and selling _____________________. Investing Activities do not include any gains or losses realized from these transactions. Gains and losses are used in the determination of net income , so they go in the Operating Activities of the Statement of Cash Flows Financing Activities Cash effect of transactions and events with ___________________________. Cash inflows include issuing stock for cash and borrowing cash from creditors Cash outflows include paying cash dividends , buying treasury stock , and the PRINCIPAL repayment of a loan
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ACCT 225 – Fall 2008 Page 3 of 13 Chapter 12 Financing Activities do not include the repayment of interest. Interest expense is used in the determination of net income, so it goes in the Operating Activities of the Statement of Cash Flows Noncash Investing and Financing Activities Significant noncash investing and financing activities must be reported in a separate schedule (usually at the bottom of the statement) Examples: o Purchasing equipment with a note payable
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Chapter 12 notes - Chapter 12 Class Notes Reporting and...

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