ACCT CH.4 Part. B Stmnt of Cash Flows

statement of cash flows

shows the company’s cash receipts and cash disbursements during the period. Instead of focusing on profit, it focuses on actual cash movement

Operating activities

cash inflows and outflows connected to items on the income statement.

direct method

reports the actual cash effects of each operating activity directly

operating activity

Did the cash come from running the business, or did the cash go out to run the business?

indirect method

starts with reported net income and then adjusts it to convert it from accrual-basis income to cash-basis operating cash flow.

So instead of listing each cash receipt and payment directly, it works backward from net income.

investing activities

Cash inflows and outflows related to the acquisition and disposition of long-term assets and investment assets

1. Long-lived assets used in the business

2. Investment assets

What two broad things do investing activities usually involve?

Machines, equipment, buildings, land used in operations

What are examples of long-lived assets used in the business?

Assets like stocks and bonds of other entities, except those classified as cash equivalents or trading securities

What are investment assets in this slide?

financing activities

Cash inflows and outflows related to external financing with owners (equity) and creditors (debt)