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This session on the Statement of Cash Flows dives into the components essential for an accurate financial analysis in Intermediate Accounting. Analogizing businesses to fruit trees, it outlines operating activities as the fruit, investing activities as the trunk and branches, and financing activities as the roots. Key topics include the FASB 95 standards, cash flow from operations, and the reconciliation of net income to cash flow. It also discusses the indirect and direct methods for presenting cash flows, emphasizing FASB's preferences and requirements for disclosure of operating cash activities.
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Statement of Cash Flows Session 4 Intermediate Accounting I - Fall 2012
Businesses are like Fruit Trees Fruit = Operating Activities Trunk & Branches = Investing Activities Roots = Financing Activities Intermediate Accounting I - Fall 2012
Statement of Cash Flows • FASB 95—1987 (ASC 230-10-45) • Components • Operating cash: Operations and working capital • Investing cash: Non-current assets and investments • Financing cash: L/T debt, equity and dividends • Reconciliation of net inc. to ops. cash • Disclosure of non-cash invest. & financing transactions Intermediate Accounting I - Fall 2012
Net Income vs. Cash FlowIndirect Method • Net Income • +/- Non-cash Items • +/- Changes in Operating Working Capital • = Cash Flow from Operations • Disclosure of interest and tax payments Intermediate Accounting I - Fall 2012
Indirect vs. Direct Method • FASB prefers the direct method • FASB requires net income to cash from operations reconciliation • Components: • Cash from customers • Cash from dividends • Cash from interest income • Other operating cash receipts • Cash paid to suppliers • Cash paid to employees • Cash paid for taxes • Cash paid for interest • Other operating cash payments Intermediate Accounting I - Fall 2012
