CHAPTER 4 The Statement of Cash Flows

CHAPTER 4 The Statement of Cash Flows - The Income...

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The Income Statement and Statement of Cash Flows THE STATEMENT OF CASH FLOWS Purpose of the Statement of Cash Flows The purpose of the statement of cash flows is to identify the sources and uses of cash and the change in cash from the beginning to the end of the accounting period. The sources (cash receipts) and uses (cash disbursements) are classified into three categories. 1. Operating Activities: Cash receipts from sales and cash disbursements for cost of goods sold and operating expenses that are incurred to generate the sales. For financial accounting purposes operating activities include the receipt of dividends and interest and the payment of interest. 2. Investing Activities: Cash paid for the acquisition of fixed assets and investments and cash received from their disposition. 3. Financing Activities: Cash received from the issuance of debt or equity financing and cash paid for the retirement of financing as well as the payment of dividends. Content and Format of the Statement of Cash Flows The basic format of the statement of cash flows is as follows: Cash flows from operating activities $ Cash flows from investing activities $ Cash flows from financing activitie $ Net increase (decrease in cash for the year) $ Beginning cash balance $ Ending cash balance $ Preparation of the Statement of Cash Flows There are two approaches to preparing the statement of cash flows. In the direct method operating activities are presented as total cash receipts from sales and cash disbursements for cost of sales and other operating activities. In the indirect method operating activities are a reconciliation of net income. In this course we will be using the indirect method. Net income $ Add: Noncash charges $ Increases in current liabilities $ Decreases in current assets $ Less: Increases in current assets $ Decreases in current liabilities $ Add: Losses from investing or financing activities $ Less: Gains from investing or financing activities $ $ Net cash provided by (used by) operating activities $ Cash flows from operating activities: E:\Teaching\3321\web\module2\c4\tnotes\c4b.doc 1/31/2007 1
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The Income Statement and Statement of Cash Flows Use of the Cash Flows Worksheet Using the cash flows worksheet simplifies the process of preparing a statement of cash flows. We will be using a cash flows worksheet to complete the exercises assigned in this lesson. The worksheet starts with a listing of the beginning and ending balances of each account
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This note was uploaded on 02/01/2012 for the course ACF ACC220 taught by Professor Fiona during the Spring '08 term at Seneca.

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CHAPTER 4 The Statement of Cash Flows - The Income...

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