University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

221

Pages:

2
Author:

stud_ice13

The basics of cash flow reporting, as detailed here, involve organizing cash flows into distinct sections—Operating, Investing, and Financing activities—on the statement of cash flows. Let’s go through each part briefly: 1. Format for Statement of Cash Flows • Noncash Investing and Financing Activities: These are transactions that don’t directly affect cash, like acquiring a long-term asset with a note payable, and they’re typically reported at the bottom of the cash flow statement or as a note. 2. Cash Flows from Operating Activities • • • Operating activities generally relate to the core business activities impacting net income. Cash inflows here include revenue collections and interest income, while cash outflows cover expenses like salaries, rent, and taxes. Indirect Method: This approach begins with net income, adjusting for items not affecting cash (like depreciation and changes in working capital). This method affects only the Operating section, leaving Investing and Financing sections unaffected. Direct Method: Lists individual cash receipts and payments, providing a detailed look into specific cash transactions. 3. Cash Flows from Investing Activities • These activities involve cash used in buying or selling long-term assets. For example, selling or buying plant assets, intangible assets, and investments fall into this category. 4. Cash Flows from Financing Activities • Financing activities relate to changes in long-term liabilities and equity. Inflows include proceeds from issuing stock or debt, while outflows include dividend payments and debt repayment. 5. Multiple-Choice Questions (Examples) • • For instance, calculating cash flows under the indirect method requires adjusting net income for non-cash items like depreciation or gain/loss on asset sales. Additionally, the correct cash flow classification is essential. For example, a machine sale is an Investing activity, while paying interest is Operating, per FASB guidelines. Quick Study and Exercises These exercises test understanding of classifying cash flows, preparing statements, and calculating net cash flows under various scenarios. They include: • • Classifying Transactions: Labeling activities as Operating, Investing, or Financing. Calculating Cash Flow Adjustments: Given scenarios with items like depreciation and asset sales, determine net cash flows. This outline gives a strong foundation in understanding and preparing the cash flow statement, whether through the direct or indirect method. Let me know if you’d like to discuss specific exercises or practice calculations.