Chapter 16, Problem P16.41BPGB

To determine

Concept Introduction:

Cash flow statement:

A cash flow statement can be defined as a statement explaining the cash provided or used for different business activities like, operating activities, investing activities and financing activities.

1. Cash flow from operating activities:

The operating activities are the revenue generating activities of the business. The cash flow related to these activities are cash received from customers, cash paid for inventory, cash paid for other expenses, cash paid for income taxes etc.

When cash receipts and cash payments are used for calculating cash flow from operating activities, this method is termed as direct method.

When adjustments like depreciation expenses, increase or decrease in current assets or current liabilities are added or deducted to net income and cash flow from operating activities is calculated, it is termed as indirect method.

2. Cash flow from Investing activities:

The cash flow from investing activities can be defined as the activities related the sale and purchase of fixed assets.

3. Cash flow from Financing activities:

The cash flow from financing activities can be defined as the cash flow related to the financing generating activities of the business like issue of common stock, payment or new issue of loan, notes payable etc.

Requirement 1

To Prepare:

Cash Flow statement for McDonald December 31, 2016

To determine

Requirement 2

To explain:

The learning from this problem that will help to evaluate an investment