Create an account
The statement of cash flows is a required statement that must be prepared along with an income statement, balance sheet, and retained earnings statement
For external reporting a company must prepare either an income statement or a statement of cash flows, but not both
A primary objective of the statement of cash flows is to show the income or loss on investing and financing transactions
In preparing a statement of cash flows, cash equivalents are subtracted from cash in order to compute the net change in cash during a period
The use of cash to purchase highly liquid short term investments (cash equivalents) would be reported on the statement of cash flows as an investing activity
In preparing a statement of cash flows, the issuance of debt should be reported separately from the retirement of debt
Non cash investing and financing activities must be reported in the body of a statement of cash flows
The statement of cash flows classifies cash receipts and payments as operating, nonoperating, financial, and extraordinary activities
Cash flow from investing activities is considered the most important category on the statement of cash flows because it is considered the best measure of expected income
The receipt of dividends from long term investments in stock is classified as a cash inflow from investing activities
The payment of interest on bonds payable is classified as a cash outflow from operating activities
Any item that appears on the income statement would be considered as either a cash inflow or cash outflow from operating activities
The acquisition of a building by issuing bonds would be considered an investing and financing activity that did not affect cash
Using the indirect method an increase in accounts receivable during a period is deducted from net income in calculating cash provided by operations
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