After completing this chapter you should be able to: Indicate the usefulness of the statement of cash flows, distinguish among operating, investing, and financing activities, prepare a statement of cash flows using the indirect method, analyze the statement of cash flows. | CHAPTER 17 STATEMENT OF CASH FLOWS Accounting Principles, Eighth Edition Indicate the usefulness of the statement of cash flows. Distinguish among operating, investing, and financing activities. Prepare a statement of cash flows using the indirect method. Analyze the statement of cash flows. Study Objectives 1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases). Forward-looking Information Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image). Timeliness (no real time financial information) The Statement of Cash Flows: Usefulness and Format Preparing the Statement of Cash Flows—Indirect Method Using Cash Flows to Evaluate a Company Usefulness Classifications Significant noncash activities Format Preparation Indirect and direct methods Step 1: Operating activities Step 2: Investing and financing activities Step 3: Net change in cash Free cash flow Statement of Cash Flows Service Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation. Interest on Liability - Interest accrues each year on the PBO just as it does on any discounted debt. Actual Return on Plan Assets - Increase in pension funds from interest, dividends, and realized and unrealized changes in the fair market value of the plan assets. Amortization of Unrecognized Prior Service Cost - The cost of providing retroactive benefits is allocated to pension expense in the future, specifically to the remaining service-years of the affected employees. Gain or Loss - Volatility in pension expense can be caused by sudden and large changes in the market value of plan assets and by changes in the projected benefit . | CHAPTER 17 STATEMENT OF CASH FLOWS Accounting Principles, Eighth Edition Indicate the usefulness of the statement of cash flows. Distinguish among operating, investing, and financing activities. Prepare a statement of cash flows using the indirect method. Analyze the statement of cash flows. Study Objectives 1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases). Forward-looking Information Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image). Timeliness (no real time financial information) The Statement of Cash Flows: Usefulness and Format Preparing the Statement of Cash Flows—Indirect Method Using Cash Flows to Evaluate a Company Usefulness Classifications Significant noncash activities .
