Financial and Managerial Accounting

Chapter 13 Statement of Cash Flows

Learning Objectives

After studying this chapter, you should be able to:

1. Indicate the usefulness of the statement of cash flows.
2. Distinguish among operating, investing, and financing activities.
3. Prepare a statement of cash flows using the indirect method.
4. Analyze the statement of cash flows.

Feature Story

Got Cash?

In today's environment, companies must be ready to respond to changes quickly in order to survive and thrive. This requires that they manage their cash very carefully. One company that managed cash successfully in its early years was Microsoft. During those years, the company paid much of its payroll with stock options (rights to purchase company stock in the future at a given price) instead of cash. This strategy conserved cash and turned more than a thousand of its employees into millionaires during the company's first 20 years of business.

In recent years, Microsoft has had a different kind of cash problem. Now that it has reached a more “mature” stage in life, it generates so much cash—roughly $1 billion per month—that it cannot always figure out what to do with it. At one time, Microsoft had accumulated $60 billion.

The company ...