The objective of financial reporting is to provide investors and creditors with useful information, primarily in the form of financial statements. The balance sheet and the income statement - the focus of your study in earlier chapters - do not provide all the information needed by these decision makers. Here you will learn how the statement of cash flows fills the information gap left by the other financial statements. | 21 THE STATEMENT OF CASH FLOWS REVISITED Chapter 21 © 2013 The McGraw-Hill Companies, Inc. Chapter 21: The Statement of Cash Flows Revisited The objective of financial reporting is to provide investors and creditors with useful information, primarily in the form of financial statements. The statement of financial position and the income statement—the focus of your study in earlier chapters—do not provide all the information needed by these decision makers. Here you will learn how the statement of cash flows fills the information gap left by the other financial statements. The statement lists all cash inflows and cash outflows, and classifies them as cash flows from (a) operating, (b) investing, or (c) financing activities. Investing and financing activities that do not directly affect cash also are reported. Investing Activities Operating Activities Financing Activities Sale of property, plant, and equipment, and intangible assets Sale of investments Collections of loans Cash received from revenues Issuance of shares Issuance of bonds and notes CASH INFLOWS Business CASH OUTFLOWS Purchase of property, plant, and equipment, and intangible assets Purchase of investments Loans to others Cash paid for expenses Payment of dividends Repurchase of shares Repayment of debt Many decisions benefit from information about the company’s underlying cash flow process. Cash continually flows into and out of an active business. This graphic illustrates several examples of cash inflows and outflows classified as operating, investing and financing activities. Take a few minutes to review these examples. Role of the Statement of Cash Flows Helps users assess . . . a firm’s ability to generate cash. a firm’s ability to meet its obligations. the reasons for differences between income and associated cash flows. the effect of cash and noncash investing and financing activities on a firm’s financial position. The statement of cash flows provides information about cash flows that is lost . | 21 THE STATEMENT OF CASH FLOWS REVISITED Chapter 21 © 2013 The McGraw-Hill Companies, Inc. Chapter 21: The Statement of Cash Flows Revisited The objective of financial reporting is to provide investors and creditors with useful information, primarily in the form of financial statements. The statement of financial position and the income statement—the focus of your study in earlier chapters—do not provide all the information needed by these decision makers. Here you will learn how the statement of cash flows fills the information gap left by the other financial statements. The statement lists all cash inflows and cash outflows, and classifies them as cash flows from (a) operating, (b) investing, or (c) financing activities. Investing and financing activities that do not directly affect cash also are reported. Investing Activities Operating Activities Financing Activities Sale of property, plant, and equipment, and intangible assets Sale of investments Collections of loans Cash received
