Accounting: Cash Flows Essay

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Harvard Business School 9-193-103 os t Rev. November 3, 1998 rP Statements of Cash Flows: Three Examples yo John Stacey, a sales engineer for Aldhus Corporation, was worried. A flight delay had caused him to miss last week’s accounting class in the evening MBA program in which he had enrolled at the suggestion of the personnel director at Aldhus, a growing manufacturer of computer peripherals. The class he had missed had been devoted to a lecture and discussion of the statement of cash flows, and he was sure the material he had missed would be covered in the weekly quiz that was part of each class session. A classmate had faxed Stacey some notes distributed by their instructor, but they were too cryptic to be…show more content…
yo Investing activities shows cash flows for the purchase and sale of assets not generally held for resale and for the making and collecting of loans. (Maybe it should more appropriately be called the investing and disinvesting activities section.) Here is where you would see if the company sold a building, purchased equipment, made a loan to a subsidiary, or purchased a piece of equity in its supplier. Finally, financing activities shows the cash flows associated with increasing or decreasing the firm’s financing, for example, issuing or repurchasing stock and borrowing or repaying loans. It also includes dividends, which are cash flows associated with equity. However, ironically, it does not include interest payments; these are included in operating activities. op John Stacey: That seems strange to me. Since loans are the reason interest payments are made, why are they not included in the financing activities section? You know, interest is to loans as dividends are to equity? No tC Lucille Barnes: Actually in some other countries such as the United Kingdom interest is included in the financing activities section! But in the United States the Financial Accounting Standards Board voted that interest payments should be in the operating activities section instead. This is one of these situations where you might
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