1. Statement of Cash Flows

2. After studying this chapter, you should be able to:
Objectives
1. Summarize the types of cash flow activities reported in the statement of cash flows.
2. Prepare a statement of cash flows, using the indirect method.
3. Prepare a statement of cash flows, using the direct method.
4. Calculate and interpret the free cash flow.
After studying this chapter, you should be able to:

3. Reporting Cash Flows
The statement of cash flows reports cash flows by three types of activities:
1. Cash flows from operating activities – transactions that affect net income.
2. Cash flows from investing activities – transactions that affect noncurrent assets.
3. Cash flows from financing activities – transactions that affect equity and debt of the entity.

4. Reporting Cash Flows Decreases in Cash Operating Operating Investing
Increases in Cash
Decreases in Cash
(receipts from revenues)
Operating
(payments for expenses)
Operating
(receipts from sales of noncurrent assets)
Investing
(payments for acquiring noncurrent assets)
Investing
(receipts from issuing equity and debt securities)
Financing
(payments for treasury stock, dividends, and redemption of debt securities)
Financing

5. Merchandise purchases Payments of wages and other expenses
Cash Flows from Operating Activities
Typical cash inflows
Typical cash outflows
What are some of the typical cash inflows from operating activities?`
What are some of the typical cash outflows from operating activities?
Sales of goods
and services
Merchandise purchases
Interest revenue
Payments of wages and other expenses
Dividend revenue
Tax payments

6. Cash Flows from Investing Activities
Typical cash inflows
Typical cash outflows
What are some of the typical cash inflows from investing activities?
What are some of the typical cash outflows from investing activities?
Sales of fixed assets
Purchase of fixed assets
Sale of long-term investments
Purchase of long-term investments