What is the purpose of the Statement of Cash Flow and what is second objective?
Purpose- Provide info. about a company's cash receipts and cash payments during a period
Second Objective- Provide cash-basis information about the company's operating, investing, and financing activities during a period.
What are the 3 classifications of Cash Flows?
1: Operating Activities
2: Investing Activities
3: Financing Activities
Operating Activities involve the cash effects of transactions that enter into the determination of net income such as:
cash receipts from sales of goods and services, and cash payments to suppliers and employees for acquisitions of inventory and expenses.
Investing activities generally involve________ and include _________ , ____________ , _______________
Long term assets and include making and collecting loans , acquiring and disposing of investments , productive long-lived assets
Financing Activities involve liability and stockholders items and include ________________ , ____________ ,
obtaining cash from creditors and repaying the amounts borrowed, and obtaining capital from owners and providing them with a return on investment
Statement of CF is prepared dif. then reg. financial st. Adjusted trial balance will not provide the necessary data. CF deals with cash receipts and payments. So, company must adjust the effects of the use of _______ accounting to determine CF.
Comparative balance sheet:
Provide the amt of the changes in assets, liab, and equities from the beginning to the end of the period.
How does the Current Income Statement help prepare the statement of CF?
The data helps determine the amt of cash provided by or used by operations during the period.
How does SELECTED TRANSACTION DATA FROM THE GENERAL LEDGER help prepare the statement of CF?
It provides additional detailed information needed to determine how the company provided or used cash during the period.
Preparing the statement of CF from COMPARATIVE B/S, CURRENT I/S, AND SELECTED TRANSACTION DATA involve 3 major steps:
1: Determine the change in cash
2: Determine the net cash flow from operating activities
3: Determine net cash flows from investing and financing activities
How do you determine the change in cash?
Compute the difference between the beginning and the ending cash balance from examining its comparative balance sheets.
How do you determine the net cash flow from operating activities?
Analyzing current year's income statement and comparative balance sheets as well as selected transaction data.
Must adj the net income and convert it to net cash- determine the revenues and expenses on a cash basis by eliminating the effects of income statement transactions that do not result in an increase or decrease in cash.
How do you determine net cash flows from investing and financing activities?
Analyze all other changes in the balance sheet accounts to determine their effects on cash
Accrual basis accounting requires that companies record revenue when earned and record expenses when ________
Reports cash receipts and cash disbursements from operating activities.
(reconciliation method) starts with net income and converts it to net cash flow from operating activities. It adjusts net income for items that affected reported net income but did not affect cash.