Chapter 23 – page 1396 Codification Research Case As part of the year-end accoun

Question

Chapter 23 – page 1396 Codification Research Case As part of the year-end accounting process for your company, you are preparing the statement of cash flows according to GAAP. One of your team, a finance major, believes the statement should be prepared to report the change in working capital, because analysts many times use working capital in ratio analysis. Your supervisor would like research conducted to verify the basis for preparing the statement of cash flows.

Instructions If your school has a subscription to the FASB Codification, go to http://aaahq.org/ascLogin.cfm to log in and prepare responses to the following.

Provide Codification references for your responses.

(a) What is the primary objective for the statement of cash flows? Is working capital the basis for meeting this objective?

(b) What information is provided in a statement of cash flows?

(c) List some of the typical cash inflows and outflows from operations.

Explanation / Answer

a. Primary objective of cash flows is to determine net cash flow of the firm or company from various activities. There are mainly 3 kinds of activities used for determining or preparing the cash flow statement.

Each of these activities either genrate cash inflow or cash outlflow and inturn consolidated cash flow for the firm is determined. One of the purpose for preperation of cash flow statement is to determine working capital requirement for a firm mainly engaged into Construction or Seasonal Activity, where requirement of working capital is determined on the basis of Cash mismatch or cash deficit for the period under consideration.

b. As mentioned above cash flow statement provides information in terms of cash inflow or outflow from mainly 3 types of activities

3. Some of typical inflows from operations are as under

Typical outflows from operations :

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