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Chapter 12

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

Course Code
Aadil Merali Juma

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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
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
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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