4. Statement of Cash Flows

Change in cash = cash from operations + cash from investing + cash from financing

Realised = corresponding cash entering the firm

Realiseable = claimto collect the cash

• Sales

  • Non cash sales

• Cost of sales

  • Different from the cash spent on inventory

• Expenses

  • Non cash expense

• Income tax expense

  • Different from cash paid for income taxes

operating activities

• selling goods and providing services

• Can pay for CFF

Investing

• acquisition or sale of non current assets - PP&E

• If obsolete & firm is expanding - spending cash on CFF

Financing

• borrowing money, repaying borrowings, issuing shares, paying dividends

• Supported by CFO & CFI

CFO = cash received (from selling g&s) - cash paid (for operating g&s)

CFI = cash received (from sales of Investments and pp&e) - cash paid (for acquisition)

CFF = cash received (from issuing debt or capital stock) - cash paid (for dividends and re acquisition)

Transactions related to providing goods and services to customers and paying expenses related to revenue generating activities. Includes interest payments.

Transactions related to acquisitions or disposal of investments and non-current operating assets.

Transactions related to owners and creditors (except for interest payments).

Adjusting net income for noncash revenues and expenses

Reports cash received from customers

Less cash disbursed to suppliers, employees…

Adjusts net income for revenues or expenses that produce or use cash in amounts different from the revenue or expense

1. 2 b.s and income statement

2. T accounts - 1) cash (o,i,f) 2) other

3. Explain change (reverse engineering) - master cash t-acc

4. CF = changing the format

• Translate the income statement to the OCF: Direct method

• Indirect method: Beginning with NI, adjust with changes in A=L+E

• Direct method: Beginning with Income Statement steps, adjust

with changes in A=L+E