Lecture09 spring 2009

Lecture09 spring 2009 - 1 Lecture 9 Spring 2009 Statement...

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Unformatted text preview: 1 Lecture 9 Spring 2009 Statement of Cash Flows and Cash Flow Analysis 2 Today’s Class • Recap of Last Class (Statement of Cash Flows) • Cash Flow Analysis • Questions about Exam 3 Purpose of the Statement of Cash Flows • To report about how the entire firm’s operating, investing, and financing activities have affected its cash balances during the period covered by the statement. • In this context, “Cash” is defined as cash balances plus marketable securities with original maturities of three months or less. • The cash flow statement should display all of the cash inflows within each of the three categories 1. Operations 2. Investing 3. Financing 4 Statement of Cash Flows Purpose of Statement of Cash Flows is to reconcile why Net Income is different than change in Cash balance Stated differently, the Statement shows us how the change in Cash balance materialized The Statement of Cash Flows is broken down into three sections: Cash Flows from Operations Cash Flows from Investing Cash Flows from Financing What do we learn by partitioning cash flows this way? 5 Two Basic Methods of Reporting -- 1. the indirect method - derives cash flows from accrual basis statements 2. the direct method - determines cash flows directly for each source or use of cash . The indirect method is used extensively in practice, as shown below. The indirect is favored by companies for 2 reasons: 1. it is easier to prepare and 2. it focuses on the differences between net income and net cash flow from operating activities....
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This note was uploaded on 02/02/2012 for the course ACCT 101 taught by Professor Armstrong during the Spring '09 term at UPenn.

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Lecture09 spring 2009 - 1 Lecture 9 Spring 2009 Statement...

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