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Unformatted text preview: Chapter 11 - Statement of Cash Flows Noncash activities are investing and financing activities that do not result in the transfer of cash. Examples of significant noncash investing and financing activities include: 1. Purchase of long-term assets by issuing debt. 2. Purchase of long-term assets by issuing stock. 3. Conversion of bonds payable into common stock. 4. Exchange of long-term assets. Net income includes both cash and noncash components. Our task, when preparing a statement of cash flows, is to convert net income from an accrual basis to a cash basis. This is done through the use of information found on the income statement, beginning and ending balance sheets, and additional information. The heading includes the company name, the title statement of cash flows, and the period covered. Like the income statement, the statement of cash flows is over a period of time. The three major categories are operating activities, investing activities, and financing activities, in that order. The last three lines of the statement of cash flows include amounts for the net increase or decrease in cash, cash at the beginning of the period, and cash at the end of the period. Chapter 11 Statement of Cash Flows QUESTIO NS Question 11-1 The three categories of cash flows are operating activities, investing activities, and financing activities. Operating activities include cash receipts and cash payments for transactions relating to revenue and expense activities, essentially the very same activities reported on the income statement. Investing activities include cash transactions involving the purchase and sale of long- term assets and current investments. Financing activities are cash flows resulting from the external financing of a business. Question 11-2 Changes in long-term asset accounts are used in determining net cash flows from investing activities. Changes in long-term liability and stockholders equity accounts are used in determining net cash flows from financing activities. Question 11-3 Question 11-4 Question 11-5 11-1 Chapter 11 - Statement of Cash Flows The four steps are to calculate net cash flows from operating activities using information from the income statement and changes in current assets and current liabilities, determine the net cash flows from investing activities by analyzing changes in long-term asset accounts, determine the net cash flows from financing activities by analyzing changes in long-term liabilities and stockholders equity accounts, and finally, combine the operating, investing, and financing activities and make sure the total agrees with the net increase (decrease) in cash. Using the indirect method , we begin with net income and then list adjustments to net income in order to arrive at operating cash flows....
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This note was uploaded on 11/30/2011 for the course ACCT 341 taught by Professor Hunt during the Spring '11 term at Western Illinois University.
- Spring '11