+ Cash Flows

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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.
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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
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Classifying Cash Flows
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Cash receipts and cash payments
 are classified on the Statement
 of Cash Flows as follows:
   Operating Activities
   Investing Activities
   Financing Activities
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Operating Activities
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 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.
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Investing Activities
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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.
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Financing Activities
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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.
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Cash Flows: Gross or Net?
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                           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.
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Format of the                                                 Click
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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         $ #####
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   Analyzing Noncash Accounts                                       Click
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   (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
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   Constructing the
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   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.
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Noncash Investing                               Click
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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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posted:10/1/2012
language:Latin
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