ACC 421: Intermediate Accounting I
Instructor: Roger Beckstead
Saturday, December 6, 2008
In financial accounting, a cash flow statement or statement of cash flows is a financial statement that shows a company's incoming and outgoing money (sources and uses of cash) during a time period (often monthly or quarterly and also yearly). The statement shows how changes in balance sheet and income accounts affected cash and cash equivalents, and breaks the analysis down according to operating, investing, and financing activities. The statement of cash flows reports the cash provided and used by operating, investing, and financing activities during the period. The primary purpose of a statement of cash flows is to provide relevant information about the cash receipts and cash payments of an enterprise during a period. To achieve this purpose, the statement of cash flows reports the following: (1) the cash effects of operations during a period, (2) investing transactions, (3) financing transactions, and (4) the net increase or decrease in cash during the period. The FASB recommends the basis as “cash and cash equivalents.” Cash equivalents are liquid investments that mature within three months or less. The statement of cash flows meets one of the objectives of financial reporting—to help assess the amounts, timing, and uncertainty of future cash flows. Statement of cash flows is one of the quarterly financial reports any publicly traded company is required to disclose to the public. The document provides aggregate data regarding all cash inflows a company receives from both its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter. Because public companies tend to use accrual accounting, the income statements they release each quarter may not necessarily reflect changes in their cash positions. For example, if a company lands a major...