ACC 100 Chapter Notes - Chapter 2: Cash Flow Statement, Income Statement, Making Money
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Cash Flow Statement
Reports the cash effects of a company’s operations for a period of time.
Shows cash increases and decreases from operating, investing, and financing
Indicates net increase or decrease in cash balance during the period as well
as ending cash balance.
There are three types of business activity:
♦Financing activities - to start or expand a business, the owner or owners quite
often need cash from outside sources. Activities include:
Borrowing money from creditors which creates a liability - source of cash
•debt securities (bonds)
Repayment of money borrowed - use of cash
Selling ownership interests in the corporation to shareholders - source of cash
Payment of dividends - use of cash
♦Investing activities - obtaining resources or assets needed to operate the
business (i.e., equipment, buildings, etc.) and investing idle cash (i.e. short-
term or long-term investments).
Purchasing assets (property, plant and equipment) - use of cash
Selling old assets (property, plant and equipment) - source of cash
Purchasing short or long term investments (bonds or shares of other
corporations) - use of cash
Selling short or long term investments - source of cash.
Assume you have extra money to invest - how would you prefer to invest the
money?? Would you consider loaning money to a corporation (buy bonds of
another corporation) or would you rather buy shares in the company? Why
would you make the decision to lend or buy?
♦Operating activities - comprise the primary activities for which the
organization is in business - the day to day running of the business.
Revenue is received from sales or services - source of cash.
Expenses are paid to earn revenue - use of cash
NOTE: just because a business is making money is no reason to assume that the
business has a lot of cash in the bank. Think about the three types of business
activity - what could have happened to the money the business had made that
would cause it to no cash in the bank even IF their operating activities caused a
net increase in cash? Can you think of some scenarios? One might be a
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