22-Cash Flow - Chapter 22 StatementofCashFlows...

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    Chapter 22 Chapter 22                                 Statement of Cash Flows Statement of Cash Flows
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2 Statement of Cash Flows Statement of Cash Flows Introduction to the Statement of Cash Flows Usefulness of the statement What is cash? Classification of cash flows Format of the statement IFRS/Private Enterprise GAAP Comparison Comparison of IFRS and private enterprise GAAP Looking ahead Preparing a Statement of Cash Flows Sources of information Steps in the process First illustration – Tax Consultants Inc. Second illustration – Eastern Window Products Limited Third illustration – Yoshi Corporation Presentation, Disclosure, and Analysis Disclosure requirements Presentation Illustrative examples Interpreting the statement of cash flows Free cash flow
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3 Accrual accounting doesn’t necessarily match Accrual accounting doesn’t necessarily match cash flow. cash flow. Cash flow is important to Cash flow is important to Pay existing debts as they mature Pay existing debts as they mature Meet unexpected obligations Meet unexpected obligations Pursue unexpected opportunities Pursue unexpected opportunities Plan day-to-day operating activities and Plan day-to-day operating activities and Make long-term investment decisions Make long-term investment decisions Profits Profits ≠ Cash ≠ Cash
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4 Company A Balance Sheet at Dec. 31, 2011 ASSETS Cash $1,000 Other current assets 1,500 Fixed assets 20,000 Investments 5,000 Total assets $27,500 LIABILITIES Current Liabilities $2,000 Long-term Liabilities 15,000 SHAREHOLDER'S EQUITY Common Shares 7,000 Retained Earnings 3,500 Total liabilities and equity $27,500 Company A Balance Sheet at Dec. 31, 2012 ASSETS Cash $1,800 Other current assets 1,100 Fixed assets 31,000 Investments 3,000 Total assets $36,900 LIABILITIES Current Liabilities $2,400 Long-term Liabilities 19,000 SHAREHOLDER'S EQUITY Common Shares 7,000 Retained Earnings 8,500 Total liabilities and equity $36,900 Statement of Retained Earnings Beginning balance $3,500 plus: net income 9,000 less: dividends 4,000 Ending balance $8,500 Statement of Cash Flows
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5 Usefulness of the  Usefulness of the  Statement of Cash Flows Statement of Cash Flows The information may help users (investors, creditors, and others) assess the following: 1. Liquidity and solvency – i.e. the entity’s ability to generate future cash flows and its needs for cash resources 2. The amounts, timing, and uncertainty of future cash flows 3. The reasons why net income and net cash flow from operating activities differ
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6 Usefulness of the  Usefulness of the  Statement of Cash Flows Statement of Cash Flows
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7 Cash and Cash Equivalents Cash and Cash Equivalents Cash Cash on hand Demand deposits Cash Equivalents Investments that are Short term, Highly liquid, and Easily converted to a known amount of cash
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This note was uploaded on 10/26/2011 for the course ACCT 3410 taught by Professor Jobs during the Spring '11 term at Kwantlen Polytechnic University.

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22-Cash Flow - Chapter 22 StatementofCashFlows...

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