1. THE STATEMENT OF CASH FLOWS PROVIDES MANAGERS AND EXTERNAL READERS OF THE FINANCIAL STATEMENTS WITH INFORMATION TO DETERMINE WHAT HAS CAUSED CASH TO INCREASE OR DECREASE THIS RELATIVELY NEW FINANCIAL STATEMENT DID NOT REALLY COME INTO ITS OWN UNTIL 1987 Statement of Cash Flows

2. What caused cash to increase or decrease? Cash is important to any healthy business and demonstrates an ability for the company to meet obligations, expand, and invest There are three sections to the Statement of Cash Flows (SCF)  The operating section (cash from or used by the company’s business)  The investing section (cash from or used by the company’s investments in long- term assets or investments in long-term equity or debt [stocks and bonds] of other companies)  The financing section (cash from or used by borrowing or from issuing of shares) If a company is generating cash from operations, it is more desirable than if it is generating the lion’s share of its cash from selling off investments, borrowing from banks or issuing shares of its stock. Although selling property, plant and equipment, borrowing, or issuing stock are great ways to raise cash for expansion, the company must be able to meet its day-to-day obligations from its operations.

3. Information from the Income Statement and Comparative Balance Sheet Are Used to Prepare the SCF as well as other GL information provided Operating Section – Uses information from the income statement and current asset and liability section of the balance sheet Investing Section – Uses information from the long-term asset section of the balance sheet  Property Plant and Equipment  Long-Term Investments in debt and equity instruments of other companies Financing Section – Uses information from the long-term liabilities and equity section of the balance sheet  Bank Loans  Issuing shares of the company’s stock  Payment of dividends Any non-cash transactions such as exchanging common stock or a long-term note for property, plant and equipment would be disclosed in the footnotes.

4. The Statement of Cash Flows

5. An Example. Both the Income Statement and a Comparative Balance Sheet are needed to prepare the SCF

6. The Operating Section – Indirect Method

7. Operating Section and the Income Statement

11. Operating Section and the Balance Sheet

18. Investing Section - Long-Term Asset Section of Balance Sheet

19. Investing Section and Long-Term Asset Section of Balance Sheet

22. Financing Section and the Balance Sheet

27. Statement of Cash Flows