SCF--Chap021 - 21 1 STATEMENT OF CASH FLOWS Nature and...

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Unformatted text preview: 21 - 1 STATEMENT OF CASH FLOWS * Nature and Importance * Elements of SCF * Cash and Non-Cash Transactions * Methods of Preparing SCF 21 - 2 Role of the Statement of Cash Flows Helps users assess . . . a firm’s ability to generate cash. a firm’s ability to meet its obligations. the reasons for differences between income and associated cash flows. the effect of cash and noncash investing and financing activities on a firm’s financial position. Helps users assess . . . a firm’s ability to generate cash. a firm’s ability to meet its obligations. the reasons for differences between income and associated cash flows. the effect of cash and noncash investing and financing activities on a firm’s financial position. 21 - 3 Role of the Statement of Cash Flows Lists all cash inflows and all cash outflows by category: Operating, Investing, and Financing Explains the change in cash during the period Required by GAAP Cash is King! Especially during an economic downturn 21 - 4 Cash and Cash Equivalents • Short-term, highly liquid investments. • Readily converted into cash, with little or no risk of loss. • Examples: money market funds Treasury bills • Maturity date must not be longer than 3 months from date of purchase. Resources immediately available to pay obligations. 21 - 5 Operating Activities Investing Activities Financing Activities Reconciliation of the Net Increase or Decrease in Cash with the Change in the Balance of the Cash Account Noncash Investing and Financing Activities Primary Elements of the Statement of Cash Flows 21 - 6 Investing Activities Operating Activities Financing Activities Sale of operational assets Sale of investments Collections of loans Cash received from revenues Issuance of stock Issuance of bonds and notes CASH INFLOWS Business CASH OUTFLOWS Purchase of operational assets Purchase of investments Loans to others Cash paid for expenses Payment of dividends Repurchase of stock Repayment of debt 21 - 7 Investing Activities Reports the cash effects of the acquisition and disposition of assets (other than inventory and cash equivalents). Financing Activities Reports the cash effects of the sale or repurchase of shares, the issuance or repayment of debt securities, and the payment of cash dividends. Primary Elements of the Statement of Cash Flows Operating Activities Reports the cash effects of the elements of net income. 21 - 8 Cash Flows from Operating Activities Cash Flows from Operating Activities + Inflows from: customers. interest and dividends. _ Outflows to: suppliers of goods. salaries and wages. interest on debt. income taxes. 21 - 9 Direct Method or Indirect Method of Reporting Direct Method or Indirect Method of Reporting Cash Flows from Operating Activities Cash Flows from Operating Activities Reports the cash effects of each operating activity Direct Method Starts with accrual net income and converts to cash basis Indirect Method Two Formats for Reporting Operating...
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This note was uploaded on 03/07/2012 for the course LUBIN 649, 504, taught by Professor Bernet,antoninio,gazzar during the Spring '12 term at Pace.

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SCF--Chap021 - 21 1 STATEMENT OF CASH FLOWS Nature and...

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