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ADMS 2500 Module 13- The Cash Flow Statement.docx

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Administrative Studies
ADMS 2500
Brian Gaber

ADMS 2500 Nov.24/2011 Module 13- The Cash Flow Statement Revisiting Cash vs Accrual Basis Accounting - reports revenue and expenses on a comparable basis from year to year (business to business) - revenue recognized when business delivers good or provides service regardless of when paid - expenses are matched in same accounting period regardless of when suppliers, employers or taxing authorities are paid Usefulness of Cash Flow Information - cash basis provides objective measure of performance - assess amount, timing and uncertainty of future cash flow and evaluate financial flexibility and ‘quality’ of reported earnings Cash Flow Statement: Measures Performance on a Cash Basis - reports sources (inflows) and uses (outflows) of cash during period - income statement tells us how profitable company is NOT solvency (cash flow statement does) - when business operations are making cash, they can: ~ expand market ~ introduce new product lines ~ distribute cash to owners - when using more cash than generating options are reduced and firm needs more financing The Sources and Uses of Cash and Cash Equivalents - cash equivalents are short term, highly liquid investments (ex: t-bills, commercial paper, money market funds) - cash + cash equivalents - short term bank borrowings Classifying Cash Flows Operating Activities - cash receipts from customers - cash payments to employees, outside suppliers or services - cash paid to government for various taxes - cash paid on interest - also called cash flow from operating activities Investing Activities - changes in long term assets (1) acquisition/disposal of property, plant and equipment assets and intangible assets (2) purchase/sale of other businesses shares, bonds and other securities (3) lending/collection of money for periods of longer than one year Financing Activities - obtains resources from owners, returns resources to owners, borrows resources from creditors for periods of longer than one year - repays amounts borrowed - involves cash received issuing stocks, payments for dividends, issuing bonds, mortgage notes and other notes and cash paid to settle other debts Cash Flow Statement: H
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