Statement of Cash Flows

Statements of Cash Flows: Three Examples

John Stacey, a sales engineer for Aldhus Corporation, was worried. A flight delay had caused him to miss last week’s accounting class in the evening MBA program in which he had enrolled at the suggestion of the personnel director at Aldhus, a growing manufacturer of computer peripherals. The class he had missed had been devoted to a lecture and discussion of the statement of cash flows, and he was sure the material he had missed would be covered in the weekly quiz that was part of each class session. A classmate had faxed Stacey some notes distributed by their instructor, but they were too cryptic to be understood by anyone who had missed the class.

In desperation, John called Lucille Barnes, the assistant controller at Aldhus, to ask if she could take a few minutes to point him in the right direction toward understanding the statement of cash flows. She seemed delighted by the request, and they agreed to meet that afternoon.

The Meeting

At 2:00 P.M. John Stacey went to the office of Lucille Barnes with his notes and questions. After they had exchanged greetings, Lucille handed John three cash flow statements from the annual reports of other high-technology companies (Exhibits 1, 2, and 3). John was worried that Lucille would ask him to explain them, and that she would see how confused he still was about some aspects of accounting; instead, Lucille began explaining.

Lucille Barnes (Assistant Controller): The statement of cash flows is really a very useful part of the set of three statements companies are required to prepare. In some cases, it tells more about what is actually happening in a business than either the balance sheet or income statement. The statements of cash flows that I have given you are very revealing. Let me give you a brief overview of the structure and content of cash flow statements, and then you take some time to study these statements. I have prepared some questions to guide your study. Then, we...