Intermediate

Accounting
Part 1

Chapter (23)
PREPARATION OF THE STATEMENT OF CASH
FLOWS

The primary purpose of the statement of cash flows:

Is to provide information about a company’s cash
receipts and cash payments during a period.

The secondary objective of the statement of cash flows

is:
To provide cash-basis information about the company’s
operating, investing, and financing activities.

Its format reconciles the beginning and ending cash

balances for the period.
 Usefulness of the Statement of Cash Flows
• The statement of cash flows provides information to help investors, creditors, and others assess the
following:
• 1- The entity’s ability to generate future cash flows.
• 2- The entity’s ability to pay dividends and meet obligations.
• 3- The reasons for the difference between net income and net cash flow from operating activities.
• 4- The cash and non-cash investing and financing transactions during the period.
• For example, by reading the statement of cash flows, the reader might find answers to following
questions:
• • Why did cash decrease for Aixtron Aktiengesellschaft (DEU) when it reported net income for the
year?
• • How much did Telefónica, S.A. (ESP) spend on property, plant, and equipment, and intangible
assets last year?
• • Did dividends paid by BP plc (GBR) increase last year?
• • How much money did Coca-Cola (USA) borrow last year?
• • How much cash did Delhaize Group (BEL) use to repurchase ordinary shares?
Classification of Cash Flows
• Operating activities involve the cash effects of transactions that enter into the determination of net
income, such as cash receipts from sales of goods and services, and cash payments to suppliers and
employees for acquisitions of inventory and expenses.

• Investing activities generally involve non-current assets and include (a) making and collecting
loans, and (b) acquiring and disposing of investments and productive long-lived assets.

• Financing activities involve liability and equity items and include (a) obtaining cash from creditors
and repaying the amounts borrowed, and (b) obtaining capital from owners and providing them
with a return on, and a return of, their investment.
NOW MOVE TO EXCEL SHEET