BU121 Study Guide - Final Guide: Accrual, Cash Flow, Promissory Note
Document Summary
Cash flow permits a company to expand its operations, replace worn assets, take advantage of new investment opportunities, pay its creditors, and pay dividends to its owners, some even say cash flow is king . Cash equivalents are short term highly liquid, readily convertible assets. Can become cash in 3 months and super low risk. Cash inflows and outflows directly related to earnings (revenues and expenses) from normal operations. Direct method of presenting this section reports components of cash flows from operating activities section of the statement of cash flows from operating activities as gross payments and gross receipts. *this method is recommended but rarely used because it is costly to implement. The indirect method starts with net earning for the period and then eliminates non-cash items to arrive at net cash inflow or outflow from operating activities. the statement of earning is prepared under the accrual concept earned without being collected.
