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Chapter 12

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


Department
Commerce
Course Code
COMMERCE 1AA3
Professor
Aadil Merali Juma
Chapter
12

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MIDTERM NOTES: Chapter 12
Statement of Cash Flows
Provide information about cash receipts, cash payments, and the net changes in cash resulting
from operating, investing, and financing activities
Operating: income statement items, current assets, and current liabilities
o Relate to transactions that make up net income (create revenue, expenses, gains and
losses)
o Most important activity for a business
Investing: long term assets and investments (purchase and sale of long term assets)
o Cash inflows/outflows related to resources used for generating future income
Fiaig: log te liailities ad owe’s euity (hages i size ad opositio of euity
and borrowing)
o Issuance and acquisition of company, shares, payments of dividends, cash proceeds
from loans, bonds and notes, and repayment of amounts borrowed (long and short term
borrowings)
Preparing Operating Activities
Indirect method: adjust net income from accrual to cash basis
o Easier to prepare, reveals less company information to competitors
o Focuses on difference between net earnings and net cash flow
o Calculations begin with net income then adjust with +/- of accounts
Net Income Adjustments
Add items that decrease income but do not affect cash
o Depreciation/amortization expense
o Losses on disposal of assets (both current and long term)
o Decreases in current assets
o Increases in current liabilities
Subtract items that increase net income but do not affect cash
o Gains on disposal of assets (current and long term)
o Increases in current assets
o Decreases in current liabilities
Rationales for Adjustments
Gains and losses on disposal on assets
o Book value of an asset = cost accumulated depreciation
o Gain/loss on disposal of an asset = proceeds book value
o Gain increases net income not net cash, therefore, gains deduct net income to adjust
accrual to cash
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