Acct 311 Chapter 4

4.1 The statement of cash flows is important and useful because it shows how cash has been generated during a period. This includes cash equivalents and whether cash was generated from operations, investing or from financing.

4.2 Operating activities include delivering or producing goods for sale and providing services and the cash effects of transactions and other events that enter into the determination of income. Investing activities include acquiring and selling or disposing of securities that are not cash equivalents and productive assets that are expected to benefit the from for long periods of time. Financing activities include borrowing from creditors and repaying the principal and obtaining resources from owners and providing them with a return on the investment.

4.3 The direct method shows cash collections from customers, interest and dividends collected, other operating cash receipts, cash paid to suppliers and employees, interest paid, taxes paid and other operating cash payments. The indirect method starts with net income and adjusts for deferrals, accruals, non cash items, such as depreciation and amortization, and non operating items.

4.4 Creditors, investors, and other users learn many things from an analysis of the cash flow statement. These included, the company’s ability to generate cash flows in the future, its capacity to meet obligations for cash, its future external financial needs, its success in productively managing investing activities, and its effectiveness in implementing financing and investing strategies.

4.5 purchase equipment =I

purchase of treasury stock =I

reduction of long-term debt =F

sale of building =I

resale of treasury stock =I

increase in short-term debt =F

issuance of common stock =F

purchase of land =I

purchase of common stock of another firm =I

payment of cash dividends =F

gain on sale of land =I

repayment of debt principal =F

4.6 accounts payable =O...