BU127 Lecture Notes - Lecture 10: Cash Flow, Income Statement, Capital Structure
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BU127 Full Course Notes
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Document Summary
Chapter 5 reporting and interpreting cash flows. The direct method of presenting the operating activities section of the statement of cash flows reports as gross receipts and gross payments. *reports the cash effects of each operating activity. The indirect method of presenting the operating activities adjusts to compute cash flows from operating activities. *starts with accrual profit and converts to cash basis. Outflows: purchase of goods for resale, salaries and wages, income taxes and interest on liabilities. Inflows: cash received from sale/disposal of property plant/equipment. Outflows: cash paid for: purchase of property, plant and equipment. Inflows: cash received from borrowings on notes, mortgages, bonds, etc. Outflows: cash paid for: repayment of principal to creditors, dividends to owners. Information needed to prepare a statement of cash flows: comparative statement of financial position, income statement and additional details. Quality of earnings ratio = (cash flow from operating activities)/(profit) Shows how much money we have, and how much money is made.
