This week we learn about the Statement of Cash Flows (Chapter 14). This week's discussion questions...

This week we learn about the Statement of Cash Flows (Chapter 14). This week's discussion questions are as follows:

1). What is the reporting purpose of the statement of cash flows? Why is this important to investors?

2). Summarize the three types of cash flow activities, and describe at least 2 types of cash flows in EACH type of activity

3). Is depreciation a source of cash flow? Why or why not?

Solutions

Expert Solution

1-	cash flow statement is prepared to show the flow of cash in the company over a period of time. It is prepared to show the sources from where cash has come and where it is spending. It is prepared to show the sources and uses of cash.This is important for investors to know the sources of funds like cash is coming either from operations of the company or from sale of investments and assets of the company or from issuing of financial securities. it is also important to know whether cash is a result of operating activities of the business.
2-	Three types of activities are involved into cash flow statement (1) cash flow from operating activities (2) cash flow from investing activites like cash from sale of old machine and equipment and purchase of new plant and machinery (3) cash flow from financing activities like issuance of shares and debentures and payment of dividend and payment of interest.
3-	no depreciation is not a source of cash flow, it is an non cash expenditure which is reduced from gross profit to reduce the tax liability of the company and it does not have any impact on the cash flow of the company so it is not a source of cash flow.

ekkarill92 answered 9 months ago

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