GLENCOE / McGraw-Hill. The Statement of Cash Flows.
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GLENCOE / McGraw-Hill
The Statementof Cash Flows
1. Distinguish between operating, investing, and financing activities.
Sources and Uses of Cash
Section Objective
A statement of cash flows is a financial statement that provides information about the cash receipts and cash payments of a business.
ANSWER:
QUESTION:
What is a statement of cash flows?
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Statement of Cash Flows
Reviewed by creditors to determine how the firm will pay principal and interest on debts
Reviewed by investors to determine if the corporation will have the cash to pay dividends
Reviewed by management for information about cash to pay employees, suppliers, and other obligations
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On the statement of cash flows, the term cash includes cash and cash equivalents.
Recall that cash consists of coin, currency, and bank accounts.
The Meaning of Cash
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Cash equivalents are assets that are easily convertible into known amounts of cash.
ANSWER:
QUESTION:
What are cash equivalents?
Examples: CDs, U.S. Treasury bills, money market funds
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Sources and Uses of Cash
The statement of cash flows reports:
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cash inflowsSources of cash
cash outflowsUses of cash
Sources and Uses of Cash
Cash inflows and outflows are classified under three headings:
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Operating Activities
Investing Activities
Financing Activities
Operating activities are routine business transactions.
ANSWER:
QUESTION:
What are operating activities?
Examples: Selling goods, paying operating expenses
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Investing activities are transactions that involve the acquisition or disposal of long-term assets.
ANSWER:
QUESTION:
What are investing activities?
Examples: Buying bonds of other companies, selling land
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Financing activities are transactions that provide cash to the business to carry on its activities.
ANSWER:
QUESTION:
What are financing activities?
Examples: Issuing capital stock, paying cash dividends
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Sources of Cash Uses of Cash
Operating Activities
Sale of merchandise
Sale of services
Interest income
Dividend income
Miscellaneous income
Pay for merchandise
Pay taxes
Pay salaries and wages
Pay interest expense
Pay for other expenses
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Sources of Cash Uses of Cash
Investing Activities
Sale of land, buildings, or equipment
Principal payments collected on receivable for long-term assets
Sale of investment in bonds or other securities
Pay for purchase of land, buildings, or equipment
Pay for the purchase of investments in bonds or other securities
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Sources of Cash Uses of Cash
Financing Activities
Issuance of common stock
Issuance of preferred stock
Issuance of bonds payable Borrowing through
signing a note payable Resale of treasury stock
Pay cash dividends on common stock
Pay cash dividends on preferred stock
Repay bond indebtedness Repay notes payable or
other borrowing Purchase treasury stock
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________________ are assets that are easily convertible into known amounts of cash.
The statement of cash flows shows the _______ and ____ of cash.
Cash inflows and outflows are classified under the headings _________________, _________________, and _________ _________.
Operating Activities
sources
Cash equivalents
Complete the following sentences:
uses
Investing Activities FinancingActivities
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_________________ are transactions that involve the acquisition or disposal of long-term assets.
An example of a(n) _______________ is the issuance of capital stock for cash.
The sale of merchandise on credit is a(n) _______________.operating activity
financing activity
Investing activities
Complete the following sentences:
Thank Youfor using
College Accounting, Tenth Edition
Price • Haddock • Brock
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