5.7: Purpose, Content and Format of a Statement of Cash Flows

Question 1

What is the main purpose of a statement of cash flows?

Answer 1

To assess an enterprise’s ability to generate cash and cash equivalents and allow users to compare the operating performance and cash flows of different entities.

Question 2

What are the three key types of activities classified in the statement of cash flows?

Answer 2

Operating activities: Main revenue-producing activities that are not investing or financing.

Investing activities: Acquisition and disposal of long-term assets and other investments.

Financing activities: Activities that change the size and composition of borrowings and equity capital.

Question 3

What are some key questions that the statement of cash flows answers?

Answer 3

Where did cash come from during the period?

What was cash used for during the period?

What was the change in the cash balance during the period?

Question 4

What is the basic format of a statement of cash flows?

Answer 4

Cash flows from operating activities $XXX
Cash flows from investing activities $XXX
Cash flows from financing activities $XXX
Net increase (decrease) in cash $XXX
Cash at beginning of period $XXX
Cash at end of period $XXX

Question 5

What is included in operating activities within the statement of cash flows?

Answer 5

Cash flows related to the enterprise’s main revenue-producing activities, including adjustments to reconcile net income to cash flow from operations.

Question 6

What types of transactions are included under investing activities in the statement of cash flows?

Answer 6

Purchase and sale of property, plant, and equipment

Purchase and sale of debt or equity securities

Loans to other entities

Question 7

What is included under financing activities in the statement of cash flows?

Answer 7

Issuance of equity securities

Issuance of debt (bonds and notes)

Redemption of debt and reacquisition of capital stock