ADPR5910 Exam 2 Notes (Siciliano 6)

ADPR5910 Exam 2 Notes (Siciliano 6) - Siciliano, Ch. 6: The...

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Siciliano, Ch. 6: The Cash Flow Statement: Tracking the King 1. Introduction 1. Income Statement Shortcomings 1. Doesn’t report on all the transactions that occur in a company unless they have an immediate impact on profit or loss 2. Doesn’t explain why the net profit on the income statement never appears as an actual improvement to the company’s bank balance 3. Doesn’t give growing companies a tool to manage their most scarce resource, cash to finance growth 2. “Cash is the King!” 1. Means making sure there’s money in the bank or in the cash register or in their pockets 3. Trailing indicator: by the time the status of a company’s liquidity is reflected in the bank account, the cause of the problem is already history and there’s not much managers can do about it 4. Managers must be regularly aware of where the cash is coming from and where it is going 1. Pore over their cash journals and bank statements and prepare an analysis of their bank account transactions each month 2. Prepare an automated financial report that summarizes those transactions and identifies the general causes of increases and decreases 5. Small Businesses: don’t prepare a statement of cash flow as a routine part of their monthly financial reporting 6. Larger Companies: produce the report, though infrequently read except by accountants and CFO, whose job it is to act on it 2. Beginning Where the Income Statement Ends 1. Formats for presenting the cash flow statement 1. Direct Method 1. Shows each major class of gross cash receipts and gross cash payments, summarizing cash outflows and inflows 2. May be easier for people w/o accounting training to read, not considered to have much analysis value 3. There no mention of net income on this report or any attempt to explain the difference btw net income and net cash flow 4. Doesn’t show inflows and outflows grouped by purpose in any meaningful way 2. Indirect Method 1. Begins with net income and adjusts for changes in account balances that affect available cash 2. Requires some practice to learn to read it, but much preferred by experts bc of the wealth of info it contains 3. The standard report format used in published annual reports and comes
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This note was uploaded on 09/07/2011 for the course ADPR 5910 taught by Professor Reber during the Fall '10 term at University of Georgia Athens.

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ADPR5910 Exam 2 Notes (Siciliano 6) - Siciliano, Ch. 6: The...

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