The Cash Flow Statement (Ch.17)

Cash Basis Accounting

Reporting income when the cash is received and expenses when the cash is paid (Not used in GAAP)

In cash flow statement only if...

we debit or credit cash

profitable companies cash flow

Not always positive cash flow, because they may use credit instead.

Reporting cash flows

Inflows: What are the total cash receipts for this period? What are the sources of the receipts

Outflow: what are the total cash payments for this period? What expenses or obligations do these payments cover?

Insights from the cash flow statements

- ability to generate future cash flows

- ability to pay dividends and meet obligations

- investing and financing transactions during the period

- cash provided (used) by operating activities and how it differs from profit

Preparing the cash flow statement

a) prepare using cash and cash equivalents (highly liquid investments readily convertible to cash or ST investments)

b) Not prep from the adj trial balance

c) information usually comes from: comparative balance sheet, current income statement, additional info

d) accrual concept is not used, since cash flow statement deals with receipts and payments

Operating activities

Cash flows from core business operations:

- cash transactions that create revenues and expenses

- changes in noncash current assets and liabilities

-> on balance sheet and income statement

Investing Activities

-non-current assets

-buying and selling of long-lived assets

-buying and selling of long-term debt or equity investments

-lending money and collecting loans