Week 3 (Internal Controls, Accounting for Cash & Ethics)

What are statement of cash flows?

Reports cash inflows & outflows

What are cash flows reported based on?

3 business activities of a company:

• Cash flows from operating activities

• Cash flows from investing activities

• Cash flows from financing activities

What is cash flows from operating activities?

From company’s transactions & events that relate to its operations

What is cash flows from investing activities?

From acquisitions & divestitures of investments & long-term assets

What is cash flows from financing activities?

From issuances of & payments toward borrowings & equity

What is the indirect method for cash flow from operating activities?

• Start w/ accrual-basis net income

• Adjust for depreciating expense

• Add decreases in operating-related current assets

• Add increases in operating-related current liabilities

• Ignore cash change

What is the accrual basis?

• Revenue recognition principle

• Matching principle

What is cash basis?

• Revenues increase net income when cash is received from customers

• Expenses decrease net income when cash is paid to suppliers, employees, etc.

• Does not require adjusting entries to accrue & deferred revenues & expenses