The individual inflows and outflows from investing

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2. the individual inflows and outflows from investing and financing activities are reported separately 3. result in either net cash either provided or used by each activity a. the amts of net cash provided or used by each activity are then totally and the
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result is the net increase or dec in cash for each period b. this amt is then added or subtracted from the beginning cash balance to obtain the end of period cash balance c. finally, any noncash investing and financing activities are reported in a separate schedule at the bottom of the statement 4. Example: Page 255 E. Preparing the Statement of Cash Flows 1. different than other basic financial statements a. do not prepare it form an adjusted trial balance b. deals with cash and payments and as a result, a co must adjust the effects of the use of accrual acctg to determine cash flows 2. info comes from three sources: a. comparative balance sheets- info in here indicates the amt of the changes in assets, liabilities and SE from the beg to the end of the pd b. current income statement- info here helps determine the amt of cash provided or used by operations c. additional info- such info includes transaction data that are needed to determine how cash was provided or used during the pd 3. three major preparation steps a. determine the net increase/decrease in cash i. diff btwn beg and ending balance in cash b. determine net cash provided/used by operating activities i. analyzing not only the current yr’s income statement but also comp balance sheets and additional data c. determine net cash provided/used by investing and financing activities i. use comp balance sheet and additional info as well ii. assume any unexplained differences in noncurrent accounts involve cash (ie: increase in equip- assume bought new equip) iii. reasons for net increase (dec) in RE determined by analysis: net income increases RE, the additional info provided below the income statement indicates if cash dividends declaired and paid *inc in net income reported in op sec, dividends paid reported in financing section F. Indirect and Direct Methods 1. the company must convert net income from an accrual basis to a cash basis- use one of two methods, each of which arrive at the same total amt for “net cash provided by
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operating activities” a. investing and financing activities not affected by choice of method 2. indirect method is used in practice by most companies a. favored because: i. it is easier to prepare ii. it focuses on the differences between net income and net cash flow from
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