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[COMMERCE 1AA3] - Final Exam Guide - Comprehensive Notes for the exam (124 pages long!)


Department
Commerce
Course Code
COMMERCE 1AA3
Professor
Emad Mohammad
Study Guide
Final

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McMaster
COMMERCE 1AA3
FINAL EXAM
STUDY GUIDE

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the purpose of the statement of cash flows is to provide information about cash receipts,
cash payment, and the net change in cash resulting from the operating, investing, and
financing activities of a company during a specific period
!
day to day activities
§
operating
related to long-term assets
§
investing
related to long term liability and owners’ equity
§
Categories
!
requires detailed information concerning the changes in account balances hat
occurred between two periods of time, an adjusted trial balance does not provide
the data necessary
comparative balance sheet
§
current income statement
§
additional information
§
sources
prepared differently from other basic financial statements
!
results from converting net income from the accrual basis to the cash basis
the indirect method
§
the direct method
§
both methods give the same result
§
companies prefer the indirect method
§
cash from operating activities can be calculated using one of two methodsL
Cash from Operating Activities
!
Statement of Cash Flows
Statement'of'Cash'Flows'(Lecture)'
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companies prefer the indirect method
§
is easier to prepare
§
focus on the differences between net earnings and net cash flow from
operating activities, and
§
reveals less company information to competitors
§
companies prefer because it:
begins with net income and then adjusts that number to calculate operating
cash flows (accrual to cash basis)
§
depreciation and amortization expense (decreases income but
doesnt have an effect on cash)
®
losses on disposal of assets
®
decreases in current asset
®
increases in current liabilities
®
add items that decrease net income but do not affect cash
"
gains on disposal of assets
®
increases in current assets
®
decreases in current liabilities
®
subtract items that increase net income but do not affect cash
"
Adjustments to Net Income
§
calculations
the indirect method
!
net cash provided (or used) by operating activities calculated by adjusting each
item in the income statement from an accrual basis to a cash basis
ending A/R= Beg A/R + revenues - collections
"
cash collations from customers
§
End A/P+Beg A/P + Purchases - payments
"
cash payments to suppliers
§
operating expenses
"
cash payments for operating expenses
§
the following items are calculated
The Direct Method
!
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