MGT120H5 Chapter Notes - Chapter 10: Current Asset, Capital Account, Current Liability
CHAPTER 10- STATEMENT OF CASH FLOWS
SUMMARY:
• The information disclosed by a company in its statement of cash
flows provides decision-relevant information to users of the
company’s financial statements. This statement includes details
about a company’s cash receipts and cash disbursements from
operating, investing, and financing activities, and permits a user to
determine exactly what caused the company’s cash balance to
increase or decrease during the period
• Specifically, the statement of cash flows helps users do the
following:
• 1.Predict future cash flows.
• 2. Evaluate management decisions.
• 3. Determine ability to pay interest and dividends.
• 4. Assess the relationship of net income to cash flows.
• 5. Compare the operating performance of different companies.
• Cash includes cash equivalents, which are short-term investments
that are readily convertible to known amounts of cash, and which
are very unlikely to change in value.
• Operating activities comprise the main revenue-producing
activities of a company, and generally result from the transactions
and other events that determine net income. Other activities that
are not investing orfinancing activities are also classified as
operating activities.
• There are two methods of determining cash flows from operating
activities, both resulting in the same net cash flows from operating
activities:
• Indirect method, in which net income is adjusted for non-cash
transactions, any deferrals or accruals of past or future operating
cash receipts or payments, and items of income or expense
associated with investing or financing cash flows
• Direct method, which explicitly reports all cash receipts and cash
payments from operating activities Investing activities include the
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MGT120H5 Full Course Notes
Verified Note
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