GAAP requires the statement of cash flows be presented when financial statements
ID: 2498217 • Letter: G
Question
GAAP requires the statement of cash flows be presented when financial statements are prepared.
Answer the following questions in the Discussion Board:
Explain the purposes of the statement of cash flows.
List and describe the three categories of activities that must be reported in the statement of cash flows.
Identify and describe the two methods that are allowed for reporting cash flows from operations.
Describe the financial statement presentation of noncash investing and financing transactions. Include in your description an example of a non-cash investing and financing transaction.
Explanation / Answer
Answer: Cash flow is a statement that tells the flow of money in a business.ie how much funds have been introduced and how much funds have been taken out from business. It basically tells the movement of money into or out of business.The purpose of a cash flow is to state information about the gross receipts and gross payments of a company during a specified time which may range from a month to a year.
Answer:b The first section is cash flow from operting activities.This section allows “involve the cash effects of transactions that enter into the determination of net income, such as cash receipts from sales of goods and services, and cash payments to suppliers and employees for acquisitions of inventory and expenses.”
An examples of a cash inflow recorded in this section is receipts from the sale of merchandise. An example of a cash outflow you would see in this section is payments to buy goods or services.
The next section in the statement of cash flows is the investing section. This section shows all activities that concern investments that the company has done during the year. The sale of fixed assets are also included in this section. For example if a company purchases a new piece of equipment this would go in the investing activities section.
The last section of this statement is the financing activities section. This section pertains to any financing activities the company was involved in during the year. An example would be the company issuing more of its stock during the year.
Answer:c The two methods allowed for reporting cash flows from operations is the direct and indirect method. Of these two the indirect method is the method that is most commonly used by companies. The direct method all major classes of operating activities are shown separately. Using the indirect method involves adjusting net income to net cash flows by removing the effects of non-cash expenses, accruals of future cash payments, and any past payments to show cash flow in its raw form.
Answer:d These transaction are explained in narrative form in the notes of the financial statements. If there is a transaction that is part cash and part non-cash the cash still needs to be reported in the statement of cash flows and the non- cash portions will be explained in the notes. An example of such a transaction would be if one company traded one piece of their equipment to another company for one of the other company’s equipment.
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