LN -Statement of Cash Flow (Ch 5 and 23)

LN -Statement of Cash Flow (Ch 5 and 23) - Ch 5 &...

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Unformatted text preview: Ch 5 & Section 1 of Ch 23: Statement of Cash Flow ACCT 401, SP 2011 1. CASH • Cash is king! Especially during an economic downturn. • Cash includes cash and cash equivalents • Cash equivalent: short-term, highly liquid investments that have both of the following characteristics: (1) readily convertible to known amounts of cash and (2) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. o Generally, only investments with original maturities of ≤ 3 months qualify under that definition. o Common examples: treasury bills, money market funds, etc. 2. THE STATEMENT OF CASH FLOW • Required for each income statement periods • it’s a change statement, summarizing the transactions that caused to change during a reporting period 1) Why is the statement of cash flows so important? A. Provides relevant information about a company’s cash receipts and cash disbursements of an enterprise during a period. . B.The statement’s value is that it helps users evaluate a company’s liquidity, solvency, and financial flexibility. 2) What types of information does the SCF allow investors and creditors to assess ? – it provides information to help assess the following: A) The entity’s ability to generate future cash flows. Ch 5 & Section 1 of Ch 23: Statement of Cash Flow ACCT 401, SP 2011 B) The entity’s ability to pay dividends and meet obligations. C) The entity’s earnings quality. D) Cash and non-cash investing and financing activities during the period . Ch 5 & Section 1 of Ch 23: Statement of Cash Flow ACCT 401, SP 2011 3. Primary Elements of the Statement of Cash Flows : 1) Cash flows from operating activities: • Includes most of the elements of net income, but reported on a cash basis rather than an accrual basis. • Inflows and outflows of cash that result from activities reported in the income statement. o Inflow e.g.: _________________________________________________ ____________________________________________________ o Outflow e.g.: _________________________________________ ___________________________________________________ 2) Cash flows from investing activities: • Inflows and outflows of cash related to the acquisition and disposition of long- term assets (such as property, plant and equipment, and intangible assets) and investment assets (except those classified as cash equivalents and trading securities). o Inflow e.g.: __________________________________________________ ________________________________________________________ _ o Outflow e.g.: ________________________________________________ ________________________________________________________ 3) Cash flows from financing activities: • Cash inflows and outflows from transactions with creditors (excluding trade creditors) and owners....
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This note was uploaded on 02/22/2012 for the course ACCT 401 taught by Professor Winchel during the Spring '10 term at South Carolina.

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LN -Statement of Cash Flow (Ch 5 and 23) - Ch 5 &...

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