chp 5 - statement of cash flows

purpose of stmt cf

stmt of cf provides answers to these questions:

what is the source of info for the stmt of cf?

operating activities

• cash effects of transactions that affect net income

• use current assets and current liabilities to assist in calculations

investing activities

cash effects of transactions that affect long-term assets

financing activities

cash effects of transactions that affect long-term liabilities and equity

operating section goal

to present “cash provided by (used in) operating activities” by converting our income statement from an accrual basis to a cash basis

2 options for presentaiton:

1. direct method - we will convert each line item on the income statement from an accrual basis to a cash basis

2. indirect method - we will convert net income form an accrual basis to a cash basis

direct method format

how to compute typical inflows for direct method

how to convert typical outflows

indirect method example

for indirect method, make these adjustments from the I/S

make these adjustments from the B/S

what is the investing section

typical inflows for investing

typical outflows in investing section

useful tips for investing section

what is financing section

typical inflows for financing

typical outflows for financing

useful tips for financing

what to do with significant non-cash activiites

examples of significant non cash activities