Cash Flow

Statement of
Cash Flows

Preview of Chapter

Usefulness and Format
Usefulness of the Statement of Cash Flows
Provides information to help assess:
1. Entity’s ability to generate future cash flows.
2. Entity’s ability to pay dividends and obligations.
3. Reasons for difference between net income and net cash provided (used) by operating activities.
4. Cash investing and financing transactions during the period.

SO 1 Indicate the usefulness of the statement of cash flows.

Usefulness and Format
Classification of Cash Flows
Operating
Activities

Investing
Activities

Financing
Activities

Income

Changes in
Investments and
Long-Term
Asset Items

Changes in
Long-Term
Liabilities and
Stockholders’
Equity

Statement
Transactions

SO 2 Distinguish among operating, investing, and financing activities.

Usefulness and Format
Classification of Cash Flows

Illustration 17-1
Typical receipt and payment classifications

SO 2 Distinguish among operating, investing, and financing activities.

Usefulness and Format
Classification of Cash Flows

Illustration 17-1
Typical receipt and payment classifications

SO 2 Distinguish among operating, investing, and financing activities.

Usefulness and Format
Significant Noncash Activities
1. Direct issuance of common stock to purchase assets.
2. Conversion of bonds into common stock.
3. Issuance of debt to purchase assets.
4. Exchanges of plant assets.
Companies report noncash activities in either a


separate schedule (bottom of the statement) or



separate note to the financial statements.

SO 2 Distinguish among operating, investing, and financing activities.

Usefulness and Format
Format of the Statement of Cash Flows
Order of Presentation:
1. Operating activities.

2. Investing activities.

Direct Method

Indirect Method

3. Financing activities.

SO 2 Distinguish among operating, investing, and financing activities.

Format of