Statement of Cash Flows

Shows the changes in cash for the same period of time as that covered by the income statement. The cash flow statement shows all sources of cash and all of the uses of cash. Provides information about cash receipts (inflows) and cash payments (outflows).

The other financial statements are based on accrual accounting (the realization principle and the matching concept) whereas the cash flow statement simply shows all of the increases and decreases in cash.

1. Section of the statement of cash flows includes the cash inflows and outflows related to the normal course of business operations. (The cash effect of transactions that create revenues and expenses and thus enter into the determination of net income). 2. Involve Income Statement Items

Section of the statement of cash flows includes the cash inflows and outflows related to the purchase and sale of long-term assets and investments.

1. Section of the statement of cash flows represents cash that is either paid to or received from owners and creditors. 2. Involve all interest-bearing liabilities, (both current and long-term) and stockholders' equity items

Cash receipts and cash payments from operating, financing, and investing activities.

1. Ability to generate future cash flows. 2. Ability to pay dividends and meet obligations. 3. Why net income is different from operating cash flows. 4. Cash investing and financing transactions.

No. Sales could have been made on account.

Depreciation (called a non-cash expense).

1. From sale of goods or services 2. From return on loans (interest received) and on equity securities (dividends received).

1. To suppliers for inventory 2. To employees for services 3. To government for taxes 4. To lenders for interest 5. To others for expenses

Include PPE and Intangibles

Represent both stock and bonds of other companies that we own as well as loans that we have made (lending money to customers).

1. From sale of property, plant, and equipment 2. From sale of investments in other entities 3. From collection of principal on loans to other entities (Any interest received would be considered an operating activity since it would effect net income).

1. To purchase property, plant, and equipment 2. To purchase investments in other entities 3. Making loans to other entities

1. From sale of company's own stock to its stockholders 2. From borrowing money (bank loan)

1. To stockholders as dividends 2. To creditors as the repayment of principal of funds borrowed (The interest payment would be considered an operating activity since it would effect net income).

Convert net income from an accrual basis to a cash basis.

Represents what the net income of the company would have been had the company used a cash accounting basis rather than accrual accounting.

1. FASB preferred but allows both methods 2. The net cash flow from operating activities as computed using the indirect method must also be reported in a separate schedule. 3. Lists each individual cash flow

1. Is used extensively in practice 2. Most companies favor the indirect method because it is easier to prepare, focuses on the differences between net income and net cash flow from operating activities, and tends to reveal less company information to competitors. 3. The indirect method starts with net income and makes a series of adjustments to convert the accrual net income into cash net income.

1. Depreciation Expense 2. Losses 3. Gains 4. Ignored when using the direct method to calculate net cash provided by operating activities.

Depreciation expense reduces the accrual basis net income as it is an expense. However, it has no effect on cash. Had cash accounting been used, no depreciation would be recorded. Thus, to convert net income from an accrual number to a cash number, you must add back depreciation.

Non-cash expense

Non-cash revenue

Detailed by entire financial statement thus it would be incorrect to include it in any one section.

Classified as an investing activity (this includes loans made by the company; notes receivable).

Represents amounts borrowed from creditors and thus would be classified as a financing activity.

Accounts Receivable, Investments, Inventory, and Prepaid Expenses

Accounts Payable, Salaries Payable, Interest Payable, and Income Taxes Payable