Chapter 11 Cash FlowChapter 11 Cash FlowChapter 11 Cash FlowChapter 11 Cash Flow

Framework

• 11.1 Function of Statement of Cash Flow

• 11.2 Classification of Cash Flow

• 11.3 Preparation of the Statement of Cash Flow

• 11.4 A Complete Illustration

11.1 Function of the Statement of Cash FlowThe Cash Flow Statement will help investors, creditors

and other external users to assess:

1. Ability to generate future cash flow;

2. Ability to pay dividends and meet obligations;

3. Reasons for the difference between net income and net cash flow from operating activities

4. Transactions involving cash and non cash investment and financing during the past period

5. Need for additional financing for the future period

11.2 Classification of Cash Flows

• 3 types of activities:

1.Operating

2.Investing

3.Financing

11.3 Preparation of the Statement of Cash Flows• 11.3.1 Cash Flow from Operating Activities

• The direct method

• The indirect method

• 11.3.2 Cash Flow from Investing Activities

• 11.3.3 Cash Flow from Financing Activities

11.4 A Complete Illustration

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