Chapter 14 - The statement of cash flows. In this chapter students will be able to: Define cash and provide a general description of the statement of cash flows, explain how the statement of cash flows can be used, provide examples of economic consequences related to how the statement of cash flows is prepared. | 1 1 Chapter 14 Statement of Cash Flows 2 2 The Statement of Cash Flows 3 Summary of company’s transactions that involve cash over a period of time. Transactions are classified as: Operations Investments Financing Figure 14-1 Sample statement of cash flows 3 Statement of Cash Flows Required for financial statements by SFAS 95 (1987). Primary purpose is to provide relevant information about cash receipts and cash disbursements of the company during the period. Serves to complement the other financial statements. Focus is on cash flows, not income. Reconciles the balance sheet and the income statement. 4 4 Definition of Cash 5 Cash consists of coin, currency, and available funds on deposit at the bank. Negotiable instruments such as money orders, certified checks, cashier’s checks, personal checks, and bank drafts are also considered cash. Also certain cash equivalents, which include commercial paper and other debt investments with maturities of less than three months are included in the statement of cash flows. 5 Content of Statement of Cash Flows Explains change in cash and cash equivalents. Cash equivalents are defined as short-term, highly liquid investments near to maturity. Examples of cash equivalents are Treasury bills and money market funds. Format of SCF includes the following three sections: cash flow from operating activities. cash flow from investing activities. cash flow from financing activities. Like US GAAP, IFRS requires the presentation of a SCF, and the format is largely the same. 6 6 General Description of the Statement of Cash Flows 7 Figure 14-2 Standard statement of cash flows 7 Cash Provided (Used) by Operating Activities Cash Flows from operating activities is based on the income statement, and converts income activity to a cash basis. There are two formats for the presentation of CF from operating activity: Direct Method: this technique shows cash received from customers and cash paid to various entities for operating activities. . | 1 1 Chapter 14 Statement of Cash Flows 2 2 The Statement of Cash Flows 3 Summary of company’s transactions that involve cash over a period of time. Transactions are classified as: Operations Investments Financing Figure 14-1 Sample statement of cash flows 3 Statement of Cash Flows Required for financial statements by SFAS 95 (1987). Primary purpose is to provide relevant information about cash receipts and cash disbursements of the company during the period. Serves to complement the other financial statements. Focus is on cash flows, not income. Reconciles the balance sheet and the income statement. 4 4 Definition of Cash 5 Cash consists of coin, currency, and available funds on deposit at the bank. Negotiable instruments such as money orders, certified checks, cashier’s checks, personal checks, and bank drafts are also considered cash. Also certain cash equivalents, which include commercial paper and other debt investments with maturities of less than three months are .
