ACCOUNTING FOR DECISION MAKERS – LECTURES 13 & 14

ACCOUNTING FOR DECISION MAKERS – LECTURES 13 & 14

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ACCOUNTING FOR DECISION MAKERS – LECTURES 13  STATEMENT OF CASH FLOWS Overview of week 7 lectures The main purpose of the statement of cash flows (SCF) The distinction between operating, investing and financing activities. Explain the impact of the company life cycle on an entity’s cash flows. Prepare a statement of cash flows using the direct and indirect methods  for operating cash flows, also done by calculating. Use the statement of cash flows to evaluate a company. Statement of cash flows: Purpose What are the sources of cash and what are we spending our money on.  Why is the cash changing in amount? To provide information about cash movements: o Cash receipts o Cash payments  o Net change In cash balances Cash is the most important liquid resource Used by investors, creditors and other interested parties to assess and  evaluate an entity’s: o Ability to generate future cash flows (amount, timing, certainty in  financing itself) o Ability to pay dividends and meet other obligations (eg: Wages and  other employee payments, interest on debt agreements). We need to determine at times why profit for a period of time is different  from cash flow for the year, especially with cash flow on operations. Shows the reasons for differences between net profit and net cash  provided (or used) from operations (why is cash flow different from  profit in a period. This is due to working capital.) Thus there is an issue  with timing with when cash will appear in the cash flow statement, thus  why we have two ways to measure cash flows. Thus we need to  recognise the timing of revenue and expenses and the cash inflow and  outflows on the other hand. Cash from investing and financing activities (and effects on assets and  liabilities) in relation to growth. This is in term of non-current things. Cash flow questions How much cash did the company generate to either expand operations  or pay dividends?
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Can the company finance its capital expenditures with cash provided by  operating activities? Is the company generating sufficient cash provided by operating  activities to meet its current obligations? Is the company generating sufficient cash provided by operating  activities to meet its long-term obligations?  Are differences between cash and accrual accounting reasonable? o
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This note was uploaded on 09/25/2011 for the course ECON 101 taught by Professor Drpearce during the Three '11 term at University of Adelaide.

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ACCOUNTING FOR DECISION MAKERS – LECTURES 13 & 14

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