After completing this chapter you should be able to: Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed; analyze the statement of cash flows and apply the cash flow on total assets ratio; prepare a statement of cash flows; compute cash flows from operating activities using the indirect method. | REPORTING THE STATEMENT OF CASH FLOWS Chapter 16 Chapter 16: Reporting the Statement of Cash Flows Cash Currency Cash Equivalents Short-term, highly liquid investments. Readily convertible into cash. Sufficiently close to maturity so that market value is unaffected by interest rate changes. MEASUREMENT OF CASH FLOWS C 1 Cash includes currency and cash equivalents. Cash equivalents are short-term, highly liquid investments that are easily converted into cash and that have very little risk of loss. An example of a cash equivalent would be a short-term Treasury Bill that is government issued, is very close to maturity, and has very little risk associated with it. Outflows Salaries and wages Payments to suppliers Taxes and fines Interest paid to lenders Other Inflows Receipts from customers Cash dividends received Interest from borrowers Other. OPERATING ACTIVITIES C 2 The Operating Activities Section includes cash inflows and cash outflows that result from the operations of the business and some incidental business transactions. Operating cash inflows include cash received from customers in payment of goods sold. It also includes cash received as dividends and interest. Operating cash outflows include cash payments for salaries, supplies, inventory, taxes, and interest. Outflows Purchasing long-term productive assets Purchasing equity investments Purchasing debt investments Other Inflows Selling long-term productive assets Selling equity investments Collecting principal on loans Other INVESTING ACTIVITIES C 2 The Investing Activities Section includes cash inflows and cash outflows that result from the sale and purchase of fixed assets and investments. If a company purchases a piece of equipment, it would be classified as a cash outflow in the investing section. If a company has excess cash and invests it in the stock of another company, it would also be classified as a cash outflow in the investing section. If, in the future, this equity investment is | REPORTING THE STATEMENT OF CASH FLOWS Chapter 16 Chapter 16: Reporting the Statement of Cash Flows Cash Currency Cash Equivalents Short-term, highly liquid investments. Readily convertible into cash. Sufficiently close to maturity so that market value is unaffected by interest rate changes. MEASUREMENT OF CASH FLOWS C 1 Cash includes currency and cash equivalents. Cash equivalents are short-term, highly liquid investments that are easily converted into cash and that have very little risk of loss. An example of a cash equivalent would be a short-term Treasury Bill that is government issued, is very close to maturity, and has very little risk associated with it. Outflows Salaries and wages Payments to suppliers Taxes and fines Interest paid to lenders Other Inflows Receipts from customers Cash dividends received Interest from borrowers Other. OPERATING ACTIVITIES C 2 The Operating Activities Section includes cash inflows and cash outflows that result from the operations of
