Statement_of_Cash_Flows

Statement of Cash Flows Debra Patch ACC 421 Feburary 21, 2011 Kaye Frashier Statement of Cash Flows Credit is good but cash is better. An income statement shows what operating activities have occurred during a period. The statement of cash flows is a financial report that shows how the cash of a company is spent. This report shows the reader what is happening with cash within a company. Company’s report their operating, investing, and financing activities in this report. A company can have a negative net income and have a positive cash flow and the other way around. Investors and creditors want to know about a company’s ability to pay current debt. The statement of cash flows will show that information. The main reason for a statement of cash flows is to give the reader an insight into what is happening with a company’s cash. The information included is cash payments, receipts, and net change in cash. This report reconciles the beginning cash balance to the ending cash balance. This report is like a bank statement, which the records have to be reconciled and verified. The difference is that a bank statement handles one account and the statement of cash flows handles all cash transactions within the company. This statement shows how a company generates cash, spends cash, and its ability to return cash to its shareholders (Rothbort, 09/07). Two different ways are used to prepare the statement of cash flows. The direct method starts with the total income and subtracts any cash activities to determine the ending cash balance. The indirect method starts with the net income and adds or subtracts anything not a cash activity. The statement of cash flows consists of three parts. The first part is the operating activity section. Any transactions not clearly defined as investing or financing activities will be handled in the operating section. Any non-cash transactions are not included or removed from the income. Investing is the next section of the statement of cash flows. This section handles plant assets, loans from the company, investing activities, and intangible assets. The last section of the statement of cash flows is the financing section. Loans to the company, capital stock activities, and dividends are in the financing section (Kieso, Weygandt, & Warfield, 2007). Investors, creditors, and other readers want to know if a company can pay its current liabilities. Investors looking for dividends want to know if the company can pay them. Readers want to know where the money is coming from. A company relying heavily on loans and stock sales to finance the regular operating activities may not be the best candidate for investing or lending credit. A company that can pay its debts with the cash generated from operating activities is a company that shows good cash flow. The statement of cash flow shows any extra spending done to improve the company and sales. Readers can look at the statement of cash flows and see exactly how the company is budgeting its money. A creditor can look at the statement and see if they can borrow money to the company. Readers can look at this statement and quickly see if the company can financially operate for a long time. Negative cash flow may be an indication of a company starting to fall apart. Negative cash flow could be the result of a large asset purchase that will improve sales. This statement will show why the cash is positive or negative. An income statement shows what operating activities have occurred throughout the period. A balance sheet shows the assets, liabilities, and equity of a business. A statement of cash flows shows how money is managed within a period. This statement takes net income or revenue and includes any cash activities for the period. Companies, investors, and readers need to know how cash is received and spent throughout a period. Two different ways a statement of cash flows can be prepared. The first way is the indirect, and the second is the direct. The difference between the two is the starting income basis. This report is used by investors and creditors to figure out if a company is worth investing in, or providing credit. Cash is the basis of all financial obligations, and this statement shows how a company handles their cash. References Rothbort, S. (09/21/2007). Why the statement of cash flows matters. Retrieved from http://www.thestreet.com/print/story/10380734.html Weygandt, J. J., Kieso, D. E., & Warfield, T. D. (2007). Intermediate Accounting (12th ed.). Hoboken, NJ: JOHN WILEY AND SONS. Document Viewer Turnitin Originality Report • Processed on: 02-21-11 12:08 PM CST • ID: 172388300 • Word Count: 753 • Submitted: 1 statement of cash flows By Debra Patch   Similarity Index 6% What's this' Similarity by Source Internet Sources: 6% Publications: 0% Student Papers: N/A 3% match (Internet) http://in.or.kr [pic]2% match (Internet) http://www.augustinecpa.com [pic]2% match (Internet from 6/12/10) http://medlibrary.org Statement of Cash Flows Debra Patch ACC 421 Feburary 21, 2011 Kaye Frashier Statement of Cash Flows Credit is good but cash is better. An income statement shows what operating activities have occurred during a period. The statement of cash flows is a financial report that shows how the cash of a company is spent. This report shows the reader what is happening with cash within a company. Company's report their operating, investing, and financing activities in this report. A company can have a negative net income and have a positive cash flow and the other way around. Investors and creditors want to know about a company's ability to pay current debt. The statement of cash flows will show that information. The main reason for a statement of cash flows is to give the reader an insight into what is happening with a company's cash. The information included is cash payments, receipts, and net change in cash. This report reconciles the beginning cash balance to the ending cash balance. This report is like a bank statement, which the records have to be reconciled and verified. The difference is that a bank statement handles one account and the statement of cash flows handles all cash transactions within the company. This statement shows how a company generates cash, spends cash, and its ability to return cash to its shareholders (Rothbort, 09/07). Two different ways are used to prepare the statement of cash flows. The direct method starts with the total income and subtracts any cash activities to determine the ending cash balance. The indirect method starts with the net income and adds or subtracts anything not a cash activity. The statement of cash flows consists of three parts. The first part is the operating activity section. Any transactions not clearly defined as investing or financing activities will be handled in the operating section. Any non-cash transactions are not included or removed from the income. Investing is the next section of the statement of cash flows. This section handles plant assets, loans from the company, investing activities, and intangible assets. The last section of the statement of cash flows is the financing section. Loans to the company, capital stock activities, and dividends are in the financing section (Kieso, Weygandt, & Warfield, 2007). Investors, creditors, and other readers want to know if a company can pay its current liabilities. Investors looking for dividends want to know if the company can pay them. Readers want to know where the money is coming from. A company relying heavily on loans and stock sales to finance the regular operating activities may not be the best candidate for investing or lending credit. A company that can pay its debts with the cash generated from operating activities is a company that shows good cash flow. The statement of cash flow shows any extra spending done to improve the company and sales. Readers can look at the statement of cash flows and see exactly how the company is budgeting its money. A creditor can look at the statement and see if they can borrow money to the company. Readers can look at this statement and quickly see if the company can financially operate for a long time. Negative cash flow may be an indication of a company starting to fall apart. Negative cash flow could be the result of a large asset purchase that will improve sales. This statement will show why the cash is positive or negative. An income statement shows what operating activities have occurred throughout the period. A [pic]balance sheet shows[pic] the [pic]assets, liabilities, and equity[pic] of a [pic]business.[pic] A [pic]statement of cash flows shows[pic] how money is managed within a period. This statement takes net income or revenue and includes any cash activities for the period. Companies, investors, and readers need to know how cash is received and spent throughout a period. Two different ways a statement of cash flows can be prepared. The first way is the indirect, and the second is the direct. The difference between the two is the starting income basis. This report is used by investors and creditors to figure out if a company is worth investing in, or providing credit. Cash is the basis of all financial obligations, and this statement shows how a company handles their cash. References Rothbort, S. (09/21/2007). Why the statement of cash flows matters. Retrieved from http://www.thestreet.com/print/story/10380734.html Weygandt, J. J., Kieso, D. E., &[pic]Warfield, T. D. (2007). Intermediate Accounting (12th ed.). Hoboken, NJ: JOHN WILEY[pic] AND [pic]SONS.[pic] Running head: [pic]STATEMENT OF CASH FLOWS 1 STATEMENT OF CASH FLOWS 2 STATEMENT OF CASH FLOWS 3 STATEMENT OF CASH FLOWS 4 STATEMENT OF CASH FLOWS 5[pic]