ACCT212 Statement Cash Flows Discussions

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ACCT212 Statement Cash Flows Discussions
Let’s start with gaining an understanding of the Statement of Cash Flows. From Exercise 12-17A, select one…

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ACCT212 Statement Cash Flows Discussions

ACCT212 Statement Cash Flows Discussions

Week 6 All Students Posts – 64 Pages 

Let’s start with gaining an understanding of the Statement of Cash Flows. From Exercise 12-17A, select one of the journal entries and explain how the accounts in the journal entry impact the statement of cash flows.

cash flow statement typically breaks out a company’s cash. sources and uses for the period into three categories: cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities. It is important to note that cash flow is not the same as net income, which includes transactions that did not involve actual transfers of money (depreciation is common example of a noncash expense that is included in net income calculations but not in cash flow calculations).

Cash flow from operating activities are generally calculated according to the following formula:

Cash Flows from Operations = Net income + Noncash Expenses + Changes in Working Capital

The statement of cash flows is one of the financial statements issued by a business, and describes the cash flows into and out of the organization. Its particular focus is on the types of activities that create and use cash, which are operations, investments, and financing.

Cash flows in the statement are divided into the following three areas:

  • Operating activities. These constitute the revenue-generating activities of a business. Examples of operating activities are cash received and disbursed for product sales, royalties, commissions, fines, lawsuits, supplier and lender invoices, and payroll.
  • Investing activities. These constitute payments made to acquire long-term assets, as well as cash received from their sale. Examples of investing activities are the purchase of fixed assets and the purchase or sale of securities issued by other entities.
  • Financing activities. These constitute activities that will alter the equity or borrowings of a business. Examples are the sale of company shares, the repurchase of shares, and dividend payments.

There are two ways in which to present the statement of cash flows, which are the direct method and indirect method.

The direct method requires an organization to present cash flow information that is directly associated with the items triggering cash flows, such as:

  • Cash collected from customers
  • Interest and dividends received
  • Cash paid to employees
  • Cash paid to suppliers
  • Interest paid
  • Income taxes paid

Under the indirect approach, the statement begins with the net income or loss reported on the company’s income statement, and then makes a series of adjustments to this figure to arrive at the amount of net cash provided by operating activities. These adjustments typically include the following:

  • Depreciation and amortization
  • Provision for losses on accounts receivable
  • Gain or loss on sale of assets
  • Change in receivables
  • Change in inventory
  • Change in payables