Chapter 5 Cash Flows

Chapter 5 Cash Flows - 2. Indirect: operating cfs are...

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Chapter 5 Cash Flows 5.1 Cash Flows as performance measure 5.2 Indirect CF statement Performance measures: 1. Net income Problems: subject to accounting choices (amortization can be artificially inflated or deflated) Grey numbers: Amortization expense (not a cf) Cogs Revenue Bad debt expense Warranty expense Pension expense Expense related to contingent liabilities Income tax expense =NET INCOME 2. Cash flows from operations Problems: does not account for any accrued/deferred revenues and expenses. CF: Operating: day to day operations Investing: long term investments: Financing: obtaining/reimbursing external funds Note: interest on a loan is classified as operating activity even though the load is classified as a financing activity. CF statement formats: 1. Direct: operating cfs area classified as a summary of receipt and payment
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Unformatted text preview: 2. Indirect: operating cfs are classified as adjustments to net income ABC INC CF STATEMENT Indirect format: 1. Start with net income 2. Remove all non cash components in calculating net income Removing non cash components: 1. Identify adjustments to net income. *non cash expenses (amort) add Gains on sale of LT assets: subtract Loss on sale of LT assets: add Gains and losses already accounted for in investing section 2. Identify changes in non cash working capital: current assets, liabilities except cash Increasing Decreasing Current Assets except cash-+ Current Liabilities +-Net income: Non cash expenses + Gain on sale of LT assets Losses on sale of LT assets+ EX JUSTIN INC....
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Chapter 5 Cash Flows - 2. Indirect: operating cfs are...

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