HB 311 1st Edition Lecture 3Cash Flows Statement - Statement showing effects on cash from a business’s three activities o Operating- running business on day-to-day basis such as buying inventory, producing and selling product, paying expenses and taxes, collecting credit sales o Investing- When firm buys or sells things to do business, including purchasing fixed assets, examine change in GROSS fixed assets, not net o Financing- Firm borrows money, pays off loans, sells stock, pays dividends- Cash is defined as Cash and Cash Equivalents- Cash Equivalents = Treasury Bills, Money Market Accounts- Any transfers from cash to cash equivalents is not considered to be a receipt or disbursement - Income doesn’t represent cash in firm’s pocket - Information on movement of cash - Constructed from balance sheet and income statement Importance of SCF- Organizations ability to generate positive cash flows - Shows how much cash firm has to pay bills - Can see if company is risky or if cash is generated from operations Sources of Cash Flows- Operating – Cash Inflow from Sale of Goods and Interest. Cash Outflow from payment of salaries and payment to suppliers. - Investing – Cash Inflow from Sale of Property. Cash Outflow from cash to purchase property. - Financing – Cash Inflow from sale of stock, issuance of debt. Cash outflow from cash to repay debt or paid out dividends. These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Cash Flow RulesWhen assets increase, it’s a use of cashWhen assets increase, it’s a source of cash When liabilities increase, it’s a source of cashWhen liabilities decrease, it’s a use of
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