01 Jul Purpose and Elements of Statement of Cash Flows
Question Description
GAAP requires the statement of cash flows be presented when financial statements are prepared.
Answer the following questions in the Discussion Board:
Explain the purposes of the statement of cash flows.
List and describe the three categories of activities that must be reported in the statement of cash flows.
Identify and describe the two methods that are allowed for reporting cash flows from operations.
Describe the financial statement presentation of noncash investing and financing transactions. Include in your description an example of a non-cash investing and financing transaction.
Just do response each posted # 1 to 3 down below only.
Posted 1
Professor and Class,
A. The primary purpose of the statement of cash flows is to provide information about a company’s cash receipts and cash payments during a period. Also to provide cash-basis information about the company’s operating, investing and financing activities.
B. Operating activities will list income statement items such as cash in from sales of goods and cash out to suppliers for inventory. Investing activities will list long-term asset items such as cash in from sale of property, plant and equipment and cash out to the same. Financing activities will list long term liabilities and equity items such as cash in from sale of equity securities and cash out to stockholders as dividends.
C. The two methods of reporting are the direct and indirect method. The indirect method adjusts net income for items that affected reported net income but did not affect cash. The direct method reports cash receipts and cash disbursements and the difference between the two is the net cash flow.
D. Non cash investing and financing does not go into the statement of cash flows. They can either be disclosed in narrative or summarized in a separate schedule at the bottom of the statement or in a separate note or supplementary schedule to the financial statements.
Posted 2
Hello Professor and Classmates,
The statement of cash flows provides information to help investors, creditors, and others assess an entity’s ability to generate future cash flows, to pay dividends and to meet certain financial obligations. The differences between net income and net cash flow from operating activities are the cash and noncash investing as well as financing transactions during the reporting period.
The operating activities section always appears first and is followed by investing activities and lastly, financing activities.
The two methods for reporting cash flows from operations are direct and indirect methods. With the direct method, the cash flows from operating activities include the cash received from customers as well as cash paid to suppliers. The indirect method shows net income and adjustments necessary to convert the total net income to cash from operating activities. The direct method must also provide a reconciliation of net income to cash provided by operating activities.
Some investing and financing activities do not flow through the statement of cash flow because they do not require the use of cash. These items are typically not included in the statement of cash flows, however; they can be found as footnotes in the financial statements. An example would be the conversion of debt to equity.
Posted 3
Explain the purposes of the statement of cash flows. – The purpose of the statement of cash flows is to provide a variety of information to the investors of the business. Such as payments, and cash receipts.
List and describe the three categories of activities that must be reported in the statement of cash flows. – The three categories of activities that must be reported are : operating activities, investment activities, and financing activities.
Identify and describe the two methods that are allowed for reporting cash flows from operations. – Indirect and Direct are the two methods that are allowed for reporting cash flows from operations.
Describe the financial statement presentation of noncash investing and financing transactions. Include in your description an example of a non-cash investing and financing transaction. – investing and financial activities do not go through within the statement of cash flows. However, they are instead placed within the notes of the financial statements.
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