COMMERCE 1AA3 Chapter Notes - Chapter 12: Cash Flow, Income Statement, Current Liability

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 1AA3
• Professor: Aadil Merali Juma

Document Summary

Determines ability to pay dividends and interest. Assesses the relationship of net income to cash flows. Compares the operating performance of different companies. The statement of cash flows helps predict future cash flows by reporting past cash receipts and payments which are reasonably good predictors of future cash receipts and payments. The statement of cash flows helps evaluate management decisions by reporting on. How managers generated cash and used cash to run the business. cash is not just cash in the bank, but includes cash equivalents. Cash equivalents: short-term investments that are readily convertible to known amounts of cash and which are very unlikely to change in value. Direct method: reports all cash receipts and cash payments from operating activities. Indirect method: net income is adjusted for non-cash transactions, any deferrals or accruals or past or future operating cash receipts or payments, for items of income and expense associated with investing or financing cash flows.