ACCT 1105
Lesson 4 - Chapter 16
Reporting the Statement of Cash Flows

Lesson Competencies
Click each competency to learn more about that item

  1. Explain the purpose and importance of cash flow information

    • The Statement of Cash Flows shows the sources (inflows or receipts) and uses (outflows or payments) of cash during a period and indicates the cash balance at the end of the period.  The cash flow statement provides important information about a company’s cash position. It not only shows how a company obtained its cash and where it spent it, but also helps in providing information necessary in making business decisions.

  2. Identify cash flows as a)operating; b)investing; c)financing

    • Operating

      transactions and events that affect net income (includes

      payments and receipts of interest)

    • Investing

      transactions and events that affect long-term assets (this

      includes “investments” in securities as well as plant assets such as equipment.)

      Also includes short-term securities.

    • Financing

      transactions and events that affect long-term liabilities and equity

  3. Describe cash equivalents

    • an investment readily convertible into a know amount of cash which is sufficiently close to its maturity date so its market value is unaffected by interest rate changes.

  4. Identify the two methods of preparing a statement of cash flows

    • Direct Method-lists each major item of operating cash flows to determine the net cash inflow or outflow for operating activities

    • Indirect Method-starts with net income and adjusts it to determine a cash-basis net income

    • The indirect method is the most widely used of the two methods.

  5. Prepare a statement of cash flows using the indirect method

Assignments

  • Click each competency above to learn more about it and/or see examples.
  • Read Chapter 16 of your accounting text.
  • Review important terms for Chapter 16.
  • Print and review the Statement of Cash Flows and  Indirect Method of Preparing Cash Flows from Operating Activities handouts.
  • Take Quiz 16-1.  Click the Quizzes link in the Navigation bar to access the quizzes.  The quizzes are not required and do not affect your grade but will help you in assessing your comprehension of the material being covered.  You may take this quiz as many times as you like and you will get a different combination of questions each time.
  • Complete the following practice problems and check them against the solutions provided for the B Problems.
    • P16-1B
    • P16-4B
    Complete and submit the following problems using Homework Manager.
    • E16-2
    • P16-1A
    • P16-4A