NBJ11e_IM_ch22 - 22-122THE STATEMENT OF CASH FLOWS CHAPTER...

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Unformatted text preview: 22-122THE STATEMENT OF CASH FLOWS CHAPTER OBJECTIVESAfter careful study of this chapter, students will be able to: 1. Define operating, investing, and financing activities. 2. Know the categories of inflows and outflows of cash. 3. Classify cash flows as operating, investing, or financing. 4. Explain the direct and indirect methods for reporting operating cash flows. 5. Prepare a simple statement of cash flows. 6. Use a worksheet (spreadsheet) for a statement of cash flows. 7. Compute and disclose interest paid and income taxes paid. 8. Identify the operating cash inflows and outflows under the direct method (Appendix). 9. Compute the operating cash flows under the direct method (Appendix). 22-2SYNOPSISNeed for and History of the Statement of Cash Flows1. Users need information about the operating, investing, and financing activities of companies. Such information about a particular company relates directly or indirectly to the company's cash flows. The FASB stated that a company's financial reports should include information about cash flows and other factors affecting its liquidity or solvency. 2. GAAP requires a statement of cash flowsfor the accounting period along with a company's income statement and balance sheet. The cash flow statement is an integral part of a company’s financial statements. Conceptual Overview and Reporting Guidelines3. As discussed in Chapter 2, one of the specific objectives of financial reporting is to provide information about a company's cash flows. Information about a company's liquidity, financial flexibility, operating capability, and risk is related to this objective. Liquidityis the company's ability to pay its obligations as they become due. Financial flexibilityis a measure of the company's ability to adapt to unexpected needs and opportunities by changing the amounts and timing of its cash flows. Operating capabilityis the company's ability to maintain a given physical level of operations. Riskis the uncertainty or unpredictability of the future results of the company. 4. A statement of cash flowsis a financial statement of a company that shows the cash inflows, cash outflows, and net change in cash from its operating, investing, and financing activities during an accounting period, in a manner that reconciles the company's beginning and ending cash balances. The statement's primary purpose is to provide relevant information about the company's cash receipts and cash payments during the accounting period, information that is useful in evaluating the company's liquidity, financial flexibility, operating capability, and risk. 5. Operating activities(i.e., the provision of services and the acquisition (purchase or manufacture), sale, and delivery of goods) include all transactions and other events that are not investing and financing activities. Generating cash from operations usually is considered to be a company's most important cash flow activity....
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NBJ11e_IM_ch22 - 22-122THE STATEMENT OF CASH FLOWS CHAPTER...

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