4_Statement of Cash Flows

4_Statement of Cash Flows - So far Balance Sheet &...

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So far… Recognized that business activities create cash inflows and outflows Emphasized that accrual accounting is more than summarizing cash flows – cash + accruals Essentially now, we are going to reverse accruals to go from accrual financial statements to cash flows. Objectives Introduce the Statement of Cash Flows Agenda Mini Case 1: Limited Brands Case: International Shipholding Why a Separate Statement of Cash Flow is Useful 3 Sections of the Statement of Cash Flow Purpose of the Three Sections Relations among the Cash Flow Components Statements of Cash Flows – Direct vs. Indirect
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International Shipholding Incur $5 of costs just prior to voyage Incur $5 of costs during voyage Paid $15 when ship arrives at destination Examples
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Value of the cash flow statement Johnny is a 14 year old boy. He likes to date the older girls in the neighborhood, however since he can’t yet drive, he feels he needs to impress them by taking them to movies etc. To fund his social life, Johnny starts a lawn mowing business on May 1. He borrows his father’s electric mower and uses the electricity from his client’s outlet. Johnny quickly gets 4 neighbors to sign up for weekly lawn mowing. They agree to pay him $40 a month but in the month after the services are provided. How many dates did Johnny go on in May? How does Johnny’s Balance Sheet and Income Statement look for May? Why the contrast?
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Statement of Cash Flows Goal of the statement is to explain the change in cash between the balance sheet dates Why? * Cash is such an important balance sheet account that it necessitates a reconciliation –
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4_Statement of Cash Flows - So far Balance Sheet &...

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