Managerial Accounting 5th Edition

Chapter 13

Statement of Cash Flows

Learning Objectives

1. Explain the need for the statement of cash flows.
2. Identify the three types of business activities presented in a statement of cash flows.
3. Prepare a statement of cash flows using the direct method.
4. Prepare a statement of cash flows using the indirect method.
5. Interpret information in the statement of cash flows.

Marc Ravira started Ravira Restaurant Supply more than 10 years ago in a Chicago suburb.

His company (whose shareholders include Marc, members of his family, and a small number of other investors) sells glassware, pots and pans, restaurant equipment, and other miscellaneous items. In all, the company sells more than 5,000 products. Ravira's sales have increased each year, and Marc was especially proud of the 25 percent increase in 2014. But he was extremely dismayed when he met with his accountant, who advised him to secure a line of credit since the company's cash balance was alarmingly low. “What's up with this?” Marc wondered. “Sales are great, we're buying from the same suppliers and they haven't increased costs substantially. I can't imagine why we have a cash problem!”

To understand the impact of business activity on cash flows, which is essential for good management, Marc needs to understand the statement ...