1. © McGraw-Hill Ryerson. All rights reserved.
Learning Objectives
Understand the Business
LO1 Identify cash flows arising from operating, investing, and financing activities.
Study the accounting methods
LO2 Report cash flows from operating activities, using the indirect method.
LO3 Report cash flows from investing activities.
LO4 Report cash flows from financing activities.
Evaluate the results
LO5 Interpret cash flows from operating, investing, and financing activities.
LO6 Report and interpret cash flows from operating activities, using the direct method.
Review the chapter
© McGraw-Hill Ryerson. All rights reserved.

2. Business Activities and Cash Flows
The Statement of Cash Flows shows each major type of business activity that caused a company's cash to increase or decrease.
Operating
Activities
Investing
Activities
Financing
Activities
© McGraw-Hill Ryerson. All rights reserved.
LO1

3. Classifying Cash Flows
Statement of Cash Flows
Cash flows related to day-to-day activities
Cash flows related to long term assets
Cash flows with lenders and investors
Beginning and ending cash balance
© McGraw-Hill Ryerson. All rights reserved.
LO1

4. © McGraw-Hill Ryerson. All rights reserved.
Operating Activities
Cash flows from operating activities are related to components of net income.
Investing Activities
Cash flows from investing activities are related to the sale or purchase of investments and long-lived assets.
Financing Activities
Cash flows from financing activities are related to external financing sources (owners and lenders).
© McGraw-Hill Ryerson. All rights reserved.
LO1

5. Relationships to Other Financial Statements
To prepare a Statement of Cash Flows, information is needed from:
Comparative Balance Sheets
A complete Income Statement
Additional Data
© McGraw-Hill Ryerson. All rights reserved.
LO1

6. The basic balance sheet equation is:
Assets = Liabilities + Shareholders' Equity
Split Assets into Cash and Noncash Assets:
Cash + Noncash Assets = Liabilities + Shareholders' Equity
Move Noncash Assets to the Right:
Cash = Liabilities + Shareholders' Equity – Noncash Assets
Changes to Cash must be:
Changes in Cash = Changes in (Liabilities + Shareholders' Equity – Noncash Assets)
This equation says that changes in cash must be equal to changes in liabilities, shareholders’ equity and noncash assets.
© McGraw-Hill Ryerson. All rights reserved.
LO1

7. Preparing the Statement of Cash Flows
Determine the change in each balance sheet account. 1
Identify the cash flow category or categories for each account. 2
Create schedules that summarize operating, investing, and financing cash flows. 3
© McGraw-Hill Ryerson. All rights reserved.
LO1

8. The Direct Method reports the components of cash flows from operating activities as gross receipts and gross payments.
The Indirect Method present the operating activities sections of the cash flow statement by adjusting net income to compute cash flows from operating activities.
The result will be the same.
© McGraw-Hill Ryerson. All rights reserved.
LO1