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

LN -Statement of Cash Flow (Ch 5 and 23) - Ch 5 Section 1...

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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.
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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 .
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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. o Inflow e.g.: _______________________________________________
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Ch 5 & Section 1 of Ch 23: Statement of Cash Flow ACCT 401, SP 2011 ________________________________________________________ o Outflow e.g.: _____________________________________________ 4. There are two formats for reporting the statement of cash flows: the direct method and the indirect method. 1) Can you tell which method Publix and Kenneth use? A) EXAMPLE 1: ______________________ method PUBLIX 2008 STATEMENT OF CASH FLOWS For the Years ended December 26, 2009, December 27, 2008, and December 29, 2007 2009 2008 2007 (Amounts are in thousand s) Cash flows from operating activities: Cash received from customers $ 24,231,98 0 23,956,28 4 23,057,67 7 Cash paid to employees and suppliers (21,646,62 2) (21,570,74 9) (20,695,11 4) Income taxes paid (553,235) (641,307) (672,833) Payment for self-insured claims (283,079) (267,780) (228,216) Dividends and interest received 73,087 135,382 142,454 Other operating cash receipts 185,331 170,124 165,809 Other operating cash payments (9,230)
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