Presentation Of The Statement Of Cash Flows

The main source of cash is A/R. In 1991 the company also gathered $23M issuing stock.

In this example we have a case in which years 89, 90 and 91 net income is less than net cash provided by operating activities. One of the major reasons for this appears to have been depreciating high cost of equipment. The depreciation is trending downward over the three-year period indicating less long-term assets are being purchased/capitalized to run operations. While depreciation does not involve cash, it does impact net income. In addition, account payables have been decreasing over the last two years and significant cash has been used in the last year to pay the liability. In 1990 there are significant costs associated with restructuring activities. There

DQ 1:   What are the differences between the direct and indirect presentation of cash flows?  What are the advantages and disadvantages of the direct and indirect methods and which does the Financial Accounting Standards Board (FASB) favor and why?

‘Cash and cash equivalents’ include certain short-term investments and, in some cases, bank overdrafts. Like IFRS, ‘cash and cash equivalents’ include certain shortterm investments, although not necessarily the same short-term investments as under IFRS. Unlike IFRS, bank overdrafts are considered a form of short-term financing, with changes therein classified as financing activities. The statement of cash flows presents cash flows during the period, classified by operating, investing and financing activities. Like IFRS, the statement of cash flows presents cash flows during the period, classified by operating, investing and financing activities. The separate components of a single transaction are classified as operating, investing or financing. Unlike IFRS, cash receipts and payments with attributes of more than one class of cash flows are classified based on the predominant source of the cash flows unless the underlying transaction is accounted for as having different components. Cash flows from operating activities may be presented using either the direct method or the indirect method. If the direct method is used, then an entity presents a reconciliation of profit or loss to net cash flows from operating activities; however, in our experience practice varies regarding the measure of profit or loss used. Like IFRS, cash flows from operating activities may be presented using either the direct method or the indirect method. Like IFRS, if

The statement of cash flows breaks down the cash exchange of the long term debt for the past two years. Under the Financing Activities portion of the cash flows statement it shows the long term debt broken down intoproceeds from and repayment of bank loans. The calculations of the changes in the past two years are expressed below in thousands:

The statement of cash flows reports the cash receipts, cash payments, and net change in cash resulting from the operating, investing, and financing activities of a company during a period in a format that reconciles the beginning and ending cash balances

Although the income statement and balance sheet provide measures of a company’s success in terms of performance and financial position, cash flow is also vital to a company’s long-term success. Disclosing the sources and uses of cash helps creditors, investors, and other statement users evaluate a company’s liquidity, solvency, and financial flexibility. Financial flexibility is the ability of a company to react and adapt to financial adversities and opportunities. McDonald’s cash flow is

The cash flow statement shows the amount of cash within a company. Items that affect the cash balance are listed on the statement. The first section of the cash flow statement is operating activities, which shows the cash flowing in and out of the company in relation to its business operation. The operating activities section also includes net income and the change in dollars of certain accounts listed on the balance sheet. The next section, investing activities, shows cash the company received and spent on a company's capital investments. The financing activities section shows the inflows and outflows of cash related to the company’s issued financial securities, which is also listed on the balance sheet and statement of shareholders' equity.

The cash flow statement consists of three parts: cash flows provided by operating activities of $13,831, cash flows provided by investing activities, and cash flows provided by financing activities effect of exchange rate changes on cash and cash equivalents of ($204)

Charles Gibson said, said the “statement of cash flow has become one of the primary financial statements. …it gives managers, equity analyst, commercial lenders, and investment bankers a thorough explanation of the changes that occurred in the firm’s cash balances.” (2013, p. 393). On the cash flow statement both net cash provided by operating activities and net income are both listed. An explanation on the difference between the two is discussed below.

Correct Answer: The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, for valuation purposes we need to discount cash flows, not accounting income. Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions' performance, not that of the entire firm, information that focuses on the divisions is needed. These factors have led to the development of information that is focused on cash flows and the operations of individual units.

2. The single most important assessment in Cash Flows in the “cash flow from financial operations” because it provides an overlook on management’s operating decisions. In this case, we can see that Reebok had reported positive cash flows from operations, for example in 1990 reported $39.2M while LA Gear reported a negative (40M) the same year. Looking closely, we can see that LA Gear was retaining huge quantities of inventory while at the same time, not collecting enough money from customers (A/R). Hence we can conclude that for Reebok, operations was a source of cash but on the other hand, LA Gear was quite the opposite: operations was a use (or drain) of cash. Turning our attention to “cash flows from financing activities” we can see that more differences. Reebok is borrowing little money, instead it is paying loans. LA Gear is borrowing huge quantities of money, for example in 1990 it borrowed $56M. As a result of this, we can see where the money to finance

In actual practice, accountants use the direct method for preparing the statement of cash flows which aggregates all individual transactions made throughout the year that impact accounting cash flows. Thus, because of the lack of detail, the indirect method for preparing the statement of cash flows is sometimes difficult to exactly reconcile with the more detailed results provided from the direct method.

      The Statement of Cash flows is a very useful financial statement that can benefit investors, managers and even auditors. The statement of cash flows has not been around as long as the other financial statements such as the balance sheet or income statement. It basically “illustrates the way accounting evolves to meet the requirements of users of financial statements.” (Marshall, 2003) The statement of cash flows is designed to provide important information about the cash that a company has received or has paid out during a certain time period. It provides a reason for the changes of cash received and paid by a company by taking into

| Below is an excerpt from the cash flow statement of a firm for fiscal year 2003: Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of software Tax benefits of employee stock plans Special charges (Gains)/losses on investments Change in operating assets and liabilities: Receivables Inventories Pension assets Other assets Accounts payable Pension liabilities Other liabilities Net cash provided by operating activities Cash flows from investing activities: Payments for plant and other property Proceeds from disposition of plant and other property Investment in software