Financial Accounting: In an Economic Context

SUMMARY OF KEY POINTS

The structure and format of the statement of cash flows.

The statement of cash flows explains the change in a company's cash account from one accounting period to the next. It is divided into three sections: (1) cash provided (used) by operating activities, (2) cash provided (used) by investing activities, and (3) cash provided (used) by financing activities. Each of these sections contains the cash inflows and outflows of the period that were associated with the indicated activity.

Cash flows from operating, investing, and financing activities.

Cash flows from operating activities include those cash inflows and outflows associated directly with the acquisition and sale of a company's inventories and services. Such activities include the cash receipts from sales and accounts receivable, as well as cash payments from the purchase of inventories, payments on accounts payable, selling and administrative expenses, and interest and taxes. The sale or purchase of inventory on account is an operating transaction that does not appear on the statement of cash flows.

Cash flows from investing activities include the cash inflows and outflows associated with the purchase and sale of a company's noncurrent assets. Cash activities include the cash effects from the purchase ...