Ch.12- Reporting Cash Flows

Statement of Cash Flows

A financial statement that lists cash inflows (receipts) and outflows (payments) during a period; arranged by operating, investing, and financing.

Operating Activities

Activities that involve the production or purchase of merchandise and the sale of goods or services to customers, including expenditures related to administering the business.

Investing Activities

Transactions that involve purchasing and selling long-term assets; includes making and collecting notes receivable and investments in other than cash equivalents. 

Financing Activities 

Transactions with owners and creators that include obtaining cash from issuing debt, repaying amounts borrowed, and obtaining cash from or distributing cash to owners. 

Linkage of Cash Flow Classifications to the Balance Sheet

Cash and Noncash Accounts 

Direct Method of Reporting

Presentation of net cash from operating activities for the statement of cash flows that lists major operating cash receipts less major operating cash payments. 

Indirect Method of Reporting

Presentation that reports net income and then adjusts it by adding and subtracting items to yield net cash from operating activities on the statement of cash flows. 

Cash Flow on Total Assets

Ratio of operating cash flows to average total assets; not sensitive to income recognition and measurement; party reflects on earnings quality.