Which method of reporting cash flows from operations does the company use? Compa

Question

Which method of reporting cash flows from operations does the company use? Compare the net cash provided/used from operations to the net income amount on the income statement for all of the years presented in the annual report. Are these two numbers trending in the same direction? What is the largest adjustment item in the cash flows from operations? What has created the largest inflow and outflow of cash for investing activities? Did investing activities provide or use cash for each of the years presented? Did the financing activities provide or use cash in each of the years presented? What are the stock repurchase and dividend trends of your chosen company? Does the cash provided by operations cover the investing activities? Financing activities? What is the cash conversion cycle for your company in each of the years presented? Please interpret the cycle for each year and its current trend.

Explanation / Answer

A list of cash flows is more meaningful to investors and creditors if they can determine the type of transaction that gave rise to each cash flow. Toward this end, the statement of cash flows classifies all transactions affecting cash into one of three categories: (1) operating activities, (2) investing activities, and (3) financing activities. LO11 Operating Activities The inflows and outflows of cash that result from activities reported in the income statement are classified as cash flows from operating activities inflows and outflows of cash related to transactions entering into the determination of net operation income.. In other words, this classification of cash flows includes the elements of net income reported on a cash basis rather than an accrual basis.50 Cash inflows include cash received from: 1. Customers from the sale of goods or services. 2. Interest and dividends from investments. Operating activities are inflows and outflows of cash related to the transactions entering into the determination of net operating income. These amounts may differ from sales and investment income reported in the income statement. For example, sales revenue measured on the accrual basis reflects revenue earned during the period, not necessarily the cash actually collected. Revenue will not equal cash collected from customers if receivables from customers or unearned revenue changed during the period. Cash outflows include cash paid for: 1. The purchase of inventory. 2. Salaries, wages, and other operating expenses. 3. Interest on debt. 4. Income taxes. Likewise, these amounts may differ from the corresponding accrual expenses reported in the income statement. Expenses are reported when incurred, not necessarily when cash is actually paid for those expenses. Also, some revenues and expenses, like depreciation expense, don't affect cash at all and aren't included as cash outflows from operating activities. The difference between the inflows and outflows is called net cash flows from operating activities. This is equivalent to net income if the income statement had been prepared on a cash basis rather than an accrual basis.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.