...CHAPTER 6 STATEMENT OF CASH FLOWS Questions, Exercises, and Problems: Answers and Solutions 6.1 See the text or the glossary at the end of the book. 6.2 One can criticize a single income statement using a cash basis of accounting from two standpoints: (1) it provides a poor measure of operating performance each period because of the inaccurate matching of revenues and expenses (see discussion in Chapter 4), and (2) it excludes important investing (acquisitions and sales of long-lived assets) activities and financing (issuance or redemption of bonds or capital stock) activities of a firm that affect cash flow. 6.3 Accrual accounting provides a measure of operating performance that relates inputs to outputs without regard to when a firm receives or disburses cash. Accrual accounting portrays the resources of a firm and the claims on those resources without regard to whether the firm holds the resource in the form of cash. Although accrual accounting may satisfy user’s needs for information about operating performance and financial position, it does not provide sufficient information about the cash flow effects of a firm’s operating, investing, and financing activities. The latter is the purpose of the statement of cash flows. 6.4 The statement of cash flows reports changes in the investing and financing activities of a firm. Significant changes in property, plant, and equipment affect the structure of assets on the balance sheet, for example, the age of the assets....
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...a) Functions or uses of the cash flow statement: * Provides a clear picture of an aspect of the entity’s performance and position that is not so clear in reviewing the P/L and B/S. ie * viability of core operations * payments to suppliers, creditors * collections on debtors * dividends, interest and other payments * payments for NC assets * access to cash, likely access in the future * profit does not equal cash, so adds another aspect to the information we can obtain about an entity * generally, users have an interest in cash flow performance, as this generally gives some indication of expected return (ie. dividends) * the importance of cash for survival is known, hence the CFS gives some indication of the future prospects for the firm * CFS gives some indication of the firm’s command over economic resources and how that command was exercised * Helps management to discharge its accountability function, by indicating how it has used the cash under its control. b) reasons for the reconciliation: * profit does not equal cash flow, hence the information content of the reconciliation * provides an explanation of some *(non-cash) aspects of profit such as: impact of depreciation, credit sales etc, * cash may be the ‘lifeblood’ of the company, but CFS should supplement, not substitute for the P/L. * May, to some extent assist users to understand that there is a relationship between profit and cash...
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...Cash Flow Statement Definitions A financial statement that reflects the inflow of revenue verses the outflow of expenses resulting from operating, investing and financing activities during a specific time period. Cash flow statements and projections express a business's results or plans in terms of cash in and out of the business, without adjusting for accrued revenues and expenses. The cash flow statement doesn't show whether the business will be profitable, but it does show the cash position of the business at any given point in time by measuring revenue against outlays. Cash flow is determined by looking at three components by which cash enters and leaves a company: core operations, investing and financing. Operations- Measuring the cash inflows and outflows caused by core business operations, the operations component of cash flow reflects how much cash is generated from a company's products or services. Generally, changes made in cash, accounts receivable, depreciation, inventory and accounts payable are reflected in cash from operations. Investing- Investing activities focuses on the purchase of the long-term assets a company needs in order to make and sell its products, and the selling of any long-term assets. It reports changes in equipment, assets or investments relate to cash from investing. Financing- Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the...
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...In order to determine how income statements and statements of cash flows influence business decisions, it is important to know the definition of the two. Income Statements are defined as the summaries of an entity’s revenues, expenses, gains, and losses for a period of time and thereby reports the entity’s results of operations for that period of time. It determines if an entity operates at a profit during a certain time frame, and reports revenues, expenses, gains, and losses. The Statement of Cash Flows is a financial statement that explains the change of cash flows during a fiscal period. This includes operating cost, investments, and financial activities of an entity. Its purpose is to identify the sources and uses of cash throughout a fiscal period, and report all activities involving operations, investments, and financing. Both statements are very important in making long term and short term decisions in business. Income statements are important in determining these decisions because they allow investors to determine their role in an entity’s success by viewing its operating potential, management to determine decisions within the entity dealing with material costs, sales strategies, and consumer response to those changes, and CEO’s to view revenue reports, expenses of operating costs, and the gains and losses of the entity during a defined fiscal period before making major decisions on the direction of that entity. Statement of cash flow allows CEO’s, Investors, and management...
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...matter creditors, stock shares, managers or other information user, focus on the cash flow and the creating cash capacity of enterprise. The statement of cash flow has become one of the main financial statements of every enterprise. Because the statement of cash flow demonstrates the ability of creating net cash flow of enterprises and reveals the liquidity of enterprise’s asset more clearly, helping the users provide object evaluation of overall financial situation. However, a series of simple initial data which statement of cash flow offered still not helpful for decision directly. Therefore, according to the analysis of cash flow statement, which can understand the company’s money flows in, flow out and balance situation, realize the main methods of cash flow out and where enterprises cash flows in. The cash flow statement is intended to provide information on a firm's liquidity or solvency, in order to provide a clear understanding of a company's financial resources at special period. Through the problems found out from financial aspect, promotes the manager understand the operating situation more sufficiently, thus offer the abundant, effective basis for its science decision. TThe cash flow statement has three sections:Operating, Investing and Finance. The cash flow statement was originally known as the flow funds statement or statement of changes in financial position. Operating Activities The operating activities are related to the incoming and outgoing cash that coming...
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...Question #6 A. Briefly state how the Income Statement is different from the Cash Flow Statement. Give examples of decisions that can be made from the information provided by each of these statements? -The income statement shows how much revenue a company has earned over a period of time, which is usually for a year. The income statement also reports the costs and expenses associated with earning the revenue. At the bottom of the income statement it shows the net inome, which shows the actual earnings after expenses, taxes, etc are taken out. This can be a net profit or net loss, depending on how the company performed that year. The cash flow statement reports a company’s inflows and outflows of cash. The income statement tells whether or not the company made a profit and the statement of cash flows tells you whether the company generated cash. The statement of cash flows is the more important of the two because with negative cash flows it makes it nearly impossible to pay off your debt. It is possible to have a positive net income, with negative cash flows. -A manager can use the income statement to analyze how much revenue is being lost due to expenses. Expenses are necessary in every business, but there are ways to manage them to save money. It also allows management and investors to decide if the company wants to expand into different markets or create new products. If they see sales are consistently increasing year over year, then it may be a good time...
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...The Income Statement. It shows a business’s sources of income as well as the expenses it has incurred over a given time period that is being examined. The difference between the total incomes of the business and its expenses gives its net profit. The main aim of a business is to maximize its profit. The importance of an income statement therefore is to help in making an analysis of how the different decisions the business makes affect its level of profitability. The Cash flow Statement. It is a record of the amount of cash flowing in and out of a business over a given time period being examined. The statement is important to a business since it shows the ease by which a business can create an adequate level of liquidity or cash to finance its running operations. It also helps determine the amount of money available at the end of the business’s financial period which may be used for a subsequent period’s investment. Advantages of the income and cash flow statements. One advantages of the income and cash flow statement they are used to measure the level of performance of the business. Increased levels of profit derived from the income statement and an increased level of cash flows as shown by the cash flow statement are taken to mean that the business is performing well. The vice versa is also true. Another advantage is that both statements are also used by the management to evaluate the trend of the business by comparing its performance in the current financial...
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...SUCCESS QUOTES Your Ultimate Inspirational Guide By Patric Chan “Enrich Your Mind, Unleash Your Potential. Success Begins Within You.” http://www.esuccessmastery.com * Anthony Robbins * Dale Carnegie * Dr. Stephen Covey * Brian Tracy * Jim Rohn * * Napoleon Hill * Mark Victor Hansen * Robert Kiyosaki * Brought to you by : Noel Hynes http://ebookdirectory.com Congratulations on taking the first step toward achieving success!! Why I wrote and compiled this ebook ... Because I know how you feel. The burning desire for success and the determination you have to achieve it. The rich knowledge and resources provided in this ebook had been read personally by me, and I had benefited from it. I guess, all the featured successful men in the ebook don’t have to be introduced anymore as I’ll assume that you would have heard of them. If you do not know about them yet, just type their name in the search engine and you will find them. I will only recommend authors and coaches whom I know from my personal experience who are successful and inspirational. If you sell the product in which you believe in or you have benefited from personally, you will be a very successful person. I’ll always prefer to promote the products/services that I had used, reviewed, joined or read before. We live in abundance of wealth today. There is no limit to our earnings; we have the capacity to earn extraordinary income if we are determined to achieve it. What is most important is how we deliver our...
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...relationship between the shareholders, who are the owners of the business, and the business and show as a special liability. Relevance: This requires that the figures are meaningful and useful. Objectivity (Reliability): This requires that the information is objective and can be trusted. Feasibility: This means that the information can be collected easily and economically. Duality The duality concept is closely related to the system of double entry book-keeping used for recording the financial information upon which the financial statements are based. Because the duality concept requires the clear identification of both the assets of a business and the claims of different parties on those assets in the balance sheet, it is consistent with the criteria of relevance to users of accounting information. The duality concept also provides a “check” (through the balancing requirement) on the reliability of data provided in the main financial statements. It is therefore broadly consistent with the three criteria of relevance, objectivity and feasibility. Marketable securities: Short term investments – shares or money market deposits Overdraft – Short term bank borrowings Debentures – Loans issued in small denominations but in large numbers Called up share capital – Face value of money put in by ordinary shareholders Share premium account – excess over par value Revaluation reserve – Revaluation of fixed assets...
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...yChris Helling Chapter 1 review questions 1. Why is service so critical in the hospitality and tourism industries? Customer service is the essence of the hospitality industry. The importance of customer service in hospitality is stressed in on-the-job training. Good service in the hospitality industry is the only thing that will keep businesses aloft. 2. Describe and give an example of the following: a. Mission Statement: a statement of the purpose of a company, organization, or person and its reason for existing. A mission statement guides the actions of the organization, spell out overall goal, and guides decision-making. Ex: McDonald's - "To provide the fast food customer food prepared in the same high-quality manner world-wide that has consistent taste, serving time, and price in a low-key décor and friendly atmosphere b. Moment of truth: The interaction that occurs between a service provider and the guest is one of the key elements of service that define a guest’s experience. Ex: When a Disney employee recognized that one of their guests had to leave early because they were sick, so the employee got the approval to send them a care package. 3. What is the Disney service model? Start with a smile Eye contact and body language Respect and welcome Value the magic Initiate guest contact Create service solutions End with a thank you 4. Explain why Ritz-Carlton won the Malcolm Baldridge award. The Ritz-Carlton has a philosophy...
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...What is a reaction paper? Reaction or response papers are designed so that you'll consider carefully what you think or feel about something you've read or seen. Instructions Read or view whatever you've been asked to respond to read or view. While reading or viewing think about the following questions: • How do you feel about what you are reading (seeing)? • With what do you agree or disagree? • Can you identify with the situation? • What would be the best way to evaluate what you read or see? Pre-writing for Your Reaction Paper Keeping your responses to these questions in mind, complete as many statements as possible about what you read or saw. 1. I think that ____________________________________________________________________________________________________________________________________ 2. I see that ____________________________________________________________________________________________________________________________________ 3. I feel that ____________________________________________________________________________________________________________________________________ 4. It seems that ____________________________________________________________________________________________________________________________________ 5. In my opinion ____________________________________________________________________________________________________________________________________ 6. Because _______________...
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...Task 1 LO 1.1 All high-level programming languages support the concept of data types. A data type defines a set of values that a variable can store along with a set of operations. Data types are used to store various types of data which is managed by program. Data type attaches with variable to determine the number of bytes to be allocate to variable and valid operations which can be performed on that variable. Although C has several built-in data types, it is not a strongly typed language, as are Pascal and Ada. C supports various data types and here some common data type as character, integer and floating-point types. C defines five foundational data types as defined below: ▪ character ▪ integer ▪ floating-point ▪ double floating-point ▪ valueless These are declared as by char, int, float, double, and void, respectively. These types form the basis for some other types also. The extent and choice of these and data types may contrast amongst processor natures and compilers. However, in all belongings an object of type char is 1 byte. C stores character type inside as an integer. Each character has 8 bits so, we can have 256 different characters values (0-255). Character set is used to map between an integer value and a character. The size of an int is ordinarily the same as the word length of the implementation setting of the program. C has 3 classes of integer storage namely short int, int and long int. All of these data types...
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...to spread the mission, vision and values amongst all stakeholders in order to affect the target market most effective?’ Sub-research questions - What is the level of awareness of the current mission statement amongst stakeholders? - What are the company’s strengths and weaknesses? - What are the company’s opportunities and threats? - How is the target market defined? - How does the desired business model look like? Reason for research There has been quite some big changes the past couple of years within the Fat Duck Company, such as tv-shows, interviews, partnerships and a pressuring competition. I discovered the main goal of the company shifted the past couple of years. For example, the restaurant The Fat Duck as a three Michelin star restaurant is no more the number one to focus on in terms of the core business and profit. The direction of the company is dedicated and engaged to take a broader view on the market, opportunities and target markets. Therefore, in order to keep this company up and expanding, the mission statement must be clarified throughout all layers of the company and its stakeholders. To deal more efficient with new opportunities the future direction must be bright and well discussed amongst all employees. Besides a well known mission statement, the company has to overcome some other difficulties, such as the limited space they have to operate in, the sometimes subjective critical view of the media, the company structure, the alignment of a çhefs’...
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...This leaves management with the task of determining which computing services are feasible. If yes, then this service becomes a part of the budget (Strassman, 1998). Next identify which units within the organization have a legitimate computing need. Although this isn’t an easy task, organizations can survive with less. Consider replacing un-needed workstations with smaller servers. They’re easier to maintain and require lesser IT personnel to administrate them (Burrows and Green, 2001). Finally, provide computing services in reliable manner by educating workers on the capabilities and software applications that are included. Have a trained professional onsite to answer and assist in solving hardware and software issues. A mission statement that addresses security is critical because if an organization’s data is comprised, it has a negative impact in the public’s eye. Trust is lost, and it may take years to regain that trust. I believe some security controls are loosened because some believe it reduces the effectiveness of employees to get their...
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...a case study on Mc Donald’s Corporation. The writer will perform a SWOT analysis, suggest an appropriate mission and vision statement for this company and will provide recommendations for the future success of Mc Donald’s Corporation. Mission Statement “The mission statement defines the direction in which the organization is heading and how it will succeed in reaching its desired goal” (Peter & Donnelly, 2009, p. 8). A mission statement should describe the morals of the business as well as the products offered, target market and the company’s commitment to the consumer. According to the information presented in this case study; Mc Donald’s Corporation does not have a mission statement. The student believes that an appropriate mission statement for this company would be to provide our customers with high quality food and superior service at an affordable price. Vision Statement The vision statement describes where the organization wants to be in the future. The vision statement also describes the purpose and values of the organization, but in future terms. “A clear vision provides the foundation for developing a comprehensive mission statement” (David, 2011, p. 43). According to the information presented in this case study; Mc Donald’s Corporation does not have a vision statement. The student believes that an appropriate vision statement for this company would be to become the world leader in the restaurant industry by providing our customers with exceptional...
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