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Next Page Click Here Purpose of Statement of Cash Flows Helps the user of the financial statements assess . . . 1. A firm’s ability to: Generate cash. Meet its obligations. Pay dividends. 2. The reasons for differences between net income and cash provided from operations. 3. The effect of cash and noncash investing and financing activities during the period. Next Page Click Here Cash and Cash Equivalents The term cash refers broadly to both currency and cash equivalents: Readily convertible to a known amount of cash. Close to maturity so market value is unaffected by interest rate changes. Currency and Treasury Bills Bank Accounts Cash Money Market Funds Commercial Paper Next Page Click Classifying Cash Flows Here Cash receipts and cash payments are classified on the Statement of Cash Flows as follows: Operating Activities Investing Activities Financing Activities Next Page Click Operating Activities Here Inflows include: Receipts from customers. Cash dividends received. + Interest from borrowers. Other. Outflows include: Salaries and wages. Payments to suppliers. Taxes and fines. _ Interest paid to lenders. Other. Next Page Click Investing Activities Here Inflows from: Selling long-term productive assets. Selling equity investments. + Collecting principal on loans. Other. Outflows to: Purchase long-term productive assets. Purchase equity investments. _ Purchase debt investments. Make loans. Next Page Click Financing Activities Here Inflows from: Issuing its own equity securities. Issuing bonds and notes. + Issuing short-term and long-term debt. Outflows to: Pay dividends to stockholders. Purchase treasury stock. _ Repay cash loans. Cover withdrawals by owners. Next Page Click Cash Flows: Gross or Net? Here Investing Activities: For both financing and A Company sells investing activities, an old building for items on the $700,000 and statement of cash purchases a new flows should be building for presented in gross $1,000,000. amounts. The $700,000 inflow For operating activities of cash and the amounts are typically $1,000,000 outflow netted. of cash must be reported separately. Next Page Format of the Click Here Statement of Cash Flows Company Name Statement of Cash Flows Covered Period Cash flows from operating activities: [List of individual inflows and outflows] Net cash provided (used) by operating activities $ ##### Cash flows from investing activities: [List of individual inflows and outflows] Net cash provided (used) by investing activities ##### Cash flows from financing activities: [List of individual inflows and outflows] Net cash provided (used) by financing activities ##### Net increase (decrease) in cash $ ##### Cash (and equivalents) balance at beginning of period ##### Cash (and equivalents) balance at end of period $ ##### Next Page Analyzing Noncash Accounts Click Here (using the accounting equation) Assets = Liabilities Equity Cash + Noncash Assets = Liabilities + Equity _ Cash = Liabilities + Equity Noncash Assets Changes Changes in in Cash = Noncash Account Accounts Next Constructing the Page Click Here Statement of Cash Flows Sources Uses Net income Always Net loss Always Changes in noncash assets Decreases Increases Changes in liabilities* Increases Decreases Changes in capital stock accounts Increases Decreases Dividends paid to stockholders Always Total sources - Total uses = Net cash flow *Contra asset accounts follow the rules for liabilities. Next Page Noncash Investing Click Here and Financing Activities Items Requiring Separate Disclosure: Retirement of debt by issuing equity stock. Conversion of preferred stock to common stock. Leasing of assets in a capital lease transaction. Purchase of long-term asset by issuing a note or bond. Exchange of noncash assets for other noncash assets. Purchase of noncash assets by issuing equity stock or debt.
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