AFM101 Chapter Notes - Chapter 5: Cash Flow Statement, Cash Flow, Current Liability
Chapter 5
Note: understand the differences between cash flow from
operating/investing/financing activities and be able to create a cash flow
statement using the indirect method
Cash Flow
o Management of current assets and current liabilities
o Designed to help managers and analysts answer important cash-
related questions
Classification of Cash Flows
o Statement of cash flow shows how the beginning cash balance
becomes the ending cash balance
o Cash Equivalents: short term, highly liquid investments
o Cash flows from operating activities: cash movement in and out
related to revenues and expenses from operations
o 2 methods:
▪ direct: reports components of cash flows from operating
activities section listed as gross receipts and gross
payments
▪ indirect: adjusts net earnings to compute cash flows from
operating activities
▪ both methods always have the same value, just presented
differently
o Cash flows from investing activities: cash inflows and outflows
related to the acquisition or sale of productive facilities and
investments in the securities of other companies
o Cash flows from financing activities: cash inflows and outflows
related to external sources of financing for the enterprise
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AFM101 Full Course Notes
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