Class 6_Cash Flow_Teacher_to post

Class 6_Cash Flow_Teacher_to post -...

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Intermediate Accounting – Chapter 22 1 Statement of Cash Flows 1. Purposes and Uses of the Statement of Cash Flows Purposes of the Statement To provide information about the historical changes in cash and cash equivalents of an entity from its operating, investing, and financing activities during a period. Uses of the Statement a. Assessing the entity's ability to generate future cash flows. b. Assessing the entity's ability to pay dividends and meet obligations. c. Enabling users to develop models to assess and compare the present value of future cash flows of different enterprises. d. Comparing the operating performance of different entities by eliminating the effects of using different accounting treatments for similar transactions and events. e. Evaluating changes in the net assets and the financial structure of an entity. f. Evaluating an entity’s ability to affect the amounts and timing of cash flows in adapting to changing conditions. 2. Classification of Cash Flows and Format of the Statement of Cash Flows Operating, investing, and financing activities Operating Cash inflows From customers paying on account for the sale of goods or services. From customers for cash sales. From returns on loans (interest) and on equity securities (dividends). Cash outflows To suppliers on account for purchases of inventory and other goods and services. To or on behalf of employees for services and benefits. To government for taxes. To creditors for interest. Investing Cash inflows Proceeds on the sale of property, plant, or equipment. Proceeds on the sale of investments in debt or equity securities of other entities. Proceeds from the collection of principal on loans to other entities.
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Intermediate Accounting – Chapter 22 2 Cash outflows To purchase property, plant, or equipment. To purchase investments in debt or equity securities of other entities. To make loans to other entities. Financing Cash inflows Proceeds on the sale of shares of capital stock. Proceeds on the issuance of debt (bonds or notes). Cash outflows To reacquire shares of capital stock. To redeem debt. To shareholders for dividends Preparation of the Statement 1. Sources of Information a. Comparative balance sheets (PE or IFRS) b. Current income statement (PE) or Statement of Comprehensive Income (IFRS) c. Selected transaction data 2. Steps Step 1 : Determine the change in cash Can be done in a few ways: Differences in cash Differences in cash plus cash equivalent Differences in Cash less overdrafts or Cash less demand loans Some working capital accounts are cash equivalents. These include short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of change in value. This excludes equity investments but includes investments with a maturity period of a three-months or less.
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Intermediate Accounting – Chapter 22 3 Cash less Overdrafts or Cash less Demand Loans Also, IAS 7 Statement of Cash Flows permits preferred shares acquired close to their maturity date to be included on the basis that they are cash equivalents in substance. Most bank borrowings are
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This note was uploaded on 01/17/2012 for the course ACCOUNTING 310 taught by Professor Ily during the Spring '11 term at Concordia Canada.

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Class 6_Cash Flow_Teacher_to post -...

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