BU227 Chapter 5: Chapter 5 Reporting & Interpreting Cash Flows
Document Summary
Growing profitable operations doesn"t ensure positive cash flow (timing of revenues & expenses. ) Cash flow permits a company to expand operations, replace worn assets, and pay dividends, etc. The statement of cash flows (cf) focuses on a firm"s ability to generate cash internally, its management of current assets & liabilities, and the details of its investments and external financing. Statement of cf explains how beginning cash balance becomes the period-end cash balance. Purchase of goods for resale, & services. Depreciation of plant & equipment salaries & wages income taxes (deferred income taxes) interest on borrowings. Indirect method: adjusts accrual profit to compute cash flows from operating activities. Starts with profit and eliminates non-cash items to get net cash from operating activities. Profit & cash flows from operating activities differ due to recording of revenues & expenses: cash flows from operating activities is always the same regardless of which method we used, used by 99. 5% of companies.
