Principles of Financial Accounting · free preview
The Purpose of the Statement of Cash Flows
The statement of cash flows explains how cash moved between the beginning and ending balance, reconciling accrual profit with the cash the company actually generated and spent during the period.
1. Profit is not cash
Profit is not cash
2. The three sections
The three sections
3. What users do with it
What users do with it
4. Structure and rules
Structure and rules
5. The gap it fills
What does the statement of cash flows explain that the income statement cannot?
6. Classification test
Which activity is classified as investing on the statement of cash flows?
7. Financing examples
Which pair belongs to the financing section?
8. Earnings quality test
A company reports rising net income while operating cash flow stays flat or declines. What is the common interpretation?
9. Three sections
The statement of cash flows classifies flows into operating, investing, and what third section? One word.
10. Cash equivalents definition
Cash equivalents are short-term, highly ____ investments close enough to maturity that their value is stable. One word.
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