Chpt 11 - Cash Flow Intro

Chpt 11 - Cash Flow Intro - SOLID FOOTING 151 Chapter 11...

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SOLID FOOTING 151 Chapter 11 Introduction to the Statement of Cash Flows Through the first ten chapters of Solid Footing you learned about three of the four primary financial statements: Z Balance Sheet Z Income Statement Z Statement of Stockholders’ Equity As you have learned—these three financial statements are prepared on an accrual basis. The Statement of Cash Flows is the fourth primary financial statement. The Statement of Cash Flows is prepared on a cash basis. When a financial statement is prepared on a cash basis, only transactions resulting from cash inflows or cash outflows are included in the financial statement. In this chapter, you will learn how to prepare and read/understand the Statement of Cash Flows—a cash basis financial statement. The Statement of Cash Flows: Z Focuses on the Cash account. Z Shows the S ources of cash (cash inflows) during the period. Z Shows the U ses of cash (cash outflows) during the period. Z Categorizes the sources and uses of cash into three types of activities: Operating Activities Investing Activities Financing Activities Z Shows: The amount of cash at the beginning of the accounting period. The increase or decrease in cash during the accounting period. The amount of cash at the end of the accounting period. While the basic concepts of the Statement of Cash Flows are simple, the preparation of this financial statement can be difficult. The preparation is difficult because the accounting system is not set-up to gather the information required to prepare the Statement of Cash Flows. As you have seen, the Cash account in the General Ledger keeps track of the entity’s cash balance. The Cash account does not keep track of what causes the increases and decreases in cash. If you look at the Cash account in the General Ledger all you see is: Z The Beginning Balance Z The Debit entry amounts (cash inflows) Z The Credit entry amounts (cash outflows) Z The Ending Balance
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152 SOLID FOOTING Chapter 11 – Statement of Cash Flows By just looking at a Debit entry amount in the Cash account, you can not determine what was the S ource of that cash inflow—and by just looking at a Credit entry amount in the Cash account, you can not determine what was the U se that caused that cash outflow. As counter-intuitive as it may seem, to determine the S ources of cash (the causes of cash inflows) and the U ses of cash (the causes of cash outflows), you will calculate and use the change from the beginning balance to the ending balance in: Z All of the Asset accounts—except for the Cash account Z All of the Liability accounts Z All of the Owners’ Equity accounts In this chapter, you will learn a worksheet approach for preparing this new financial statement. By learning this worksheet approach, you will not only develop a step-by-step method for
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Chpt 11 - Cash Flow Intro - SOLID FOOTING 151 Chapter 11...

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