Accounting 102 Chp.17

The statement of cash flows

A required statement that must be prepared along with the income statement, balance sheet, and retained earnings statement. Reports the cash receipts, cash payments, and net changes in cash resulting from operating, investing, and financing activities during a period.

Operating activities

Include cash effects of transactions that create revenue and expenses. Cash flow from operating activities is considered the best measure of a company’s ability to continue as a going concern.

Investing activities

Include (a) acquiring and disposing of investments and property, plant, and equipment, and (b) lending money and collecting the loans.

Financing activities

Include (a) obtaining cash from issuing debt and repaying the amounts borrowed and (b) obtaining cash from stockholders, repurchasing shares and paying dividends.

Free Cash flow equation

Free cash flow = Net Cash provided by operating activities - Capital Expenditures - Cash Dividends