1 Copyright © 2013 McGraw-Hill Ryerson Limited Learning Objectives LO4Explain the three categories of cash flow reported in the cash flow statement and identify the types of transactions that apply to each category. LO5 Read and interpret the cash flow statement. LO6 Explain how manager decisions can affect cash flow information and how accrual accounting policy choices affect the cash flow statement.

2 Cash Flow Statement: Overview Provides information about changes in cash position Necessary because the income statement does not give a complete picture of resource flows Only reports transactions involving cash Copyright © 2013 McGraw-Hill Ryerson Limited LO4

3 Cash and Cash Equivalents Includes: Cash on hand Cash in bank accounts Short-term liquid investments Bank overdrafts Copyright © 2013 McGraw-Hill Ryerson Limited LO4

4 Cash Flow Statement Three Categories: 1.Cash from operations (CFO) 2.Investing Activities 3.Financing Activities Copyright © 2013 McGraw-Hill Ryerson Limited LO4

5 Cash from Operations Cash inflows/outflows from day to day activities Examples of cash inflows: ▫Amounts received from customers ▫Tax refunds ▫Interest received ▫Dividends received Copyright © 2013 McGraw-Hill Ryerson Limited LO4

6 Cash from Operations Examples of cash outflows: ▫Payments for inventory purchases ▫Payments to other suppliers ▫Payments to employees ▫Taxes paid ▫Interest paid Copyright © 2013 McGraw-Hill Ryerson Limited LO4

7 Investing Activities Cash inflows/outflows from buying and selling capital and other long-term assets Examples of cash inflows: ▫Sale of capital assets ▫Collection of principal on loans made by entity ▫Proceeds on sale of securities held for investment purposes ▫Interest received ▫Dividends received Copyright © 2013 McGraw-Hill Ryerson Limited LO4

8 Examples of cash outflows: ▫Purchase of capital assets ▫Loans made to other entities ▫Purchase of securities of other entities made for investment purposes ▫Amounts spent on intangible assets Copyright © 2013 McGraw-Hill Ryerson Limited Investing Activities LO4

9 Financing Activities Cash raised from/paid to owners and lenders Examples of cash inflows: ▫Proceeds from sale of shares to investors ▫Proceeds from issuance of debt to investors ▫Amounts received from long-term bank loans Copyright © 2013 McGraw-Hill Ryerson Limited LO4

10 Financing Activities Examples of cash outflows: ▫Repurchase of entity’s shares from investors ▫Repayment of debt principal ▫Repayment of long-term bank loans ▫Dividends paid to shareholders ▫Interest paid Copyright © 2013 McGraw-Hill Ryerson Limited LO4

11 Classifying Interest and Dividends Under IFRS Interest and dividends received can be classified as cash from operations or cash from investing activities Interest and dividends paid can be classified as cash from operations or cash used for financing activities Copyright © 2013 McGraw-Hill Ryerson Limited LO4