Chapter 11: The Statement of Cash Flows

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Page ID: 98048

Henry Dauderis and David Annand
Athabasca University via Lyryx Learning

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Learning Objectives

LO1 – Explain the purpose of the statement of cash flows.
LO2 – Prepare a statement of cash flows.
LO3 – Interpret a statement of cash flows.

Details about the amount of cash received and paid out during an accounting period are not shown on the balance sheet, income statement, or statement of changes in equity. This information is disclosed on the statement of cash flows (SCF). This chapter discusses the purpose of the statement of cash flows, the steps in preparing the SCF, as well as how to interpret various sections of the statement of cash flows.

11.1: Financial Statement Reporting
This page provides a self-check with questions to deepen understanding of cash flow statements from Chapter 11. It highlights the importance of cash and cash equivalents, the purpose and sections of the statement of cash flows (SCF), and its role for external decision-makers in evaluating a company's cash management and future cash flows.
11.2: Preparing the Statement of Cash Flows
This page discusses the importance of the statement of cash flows (SCF) in assessing a corporation's financial stability. It outlines cash inflows and outflows, aids in decision-making for investments and debt, and evaluates future cash flow potential. By distinguishing cash and cash equivalents, the SCF relies on management judgment and converts accrual-based net income to a cash-based performance perspective, providing a historical view while informing future financial strategies.
11.3: Interpreting the Statement of Cash Flows
This page provides guidance on preparing a Statement of Cash Flows (SCF), focusing on cash flow classification (operating, investing, financing) and the conversion from accrual to cash basis, highlighting direct and indirect methods. It reviews Example Corporation's financials for 2023, showing total assets of $3,182,000, a net income of $80,000, and cash flow activities that included machinery transactions.
11.4: Appendix A- Putting It All Together- Corporate Financial Statements
This page examines the interconnectedness of core financial statements using Wellbourn Services Ltd. as a case study. It describes the flow from the statement of income to retained earnings and the reconciliation of cash flows with the balance sheet. The text contrasts single-step and multiple-step income statements, emphasizing the latter's analytical advantages.
11.5: Appendix B- Statement of Cash Flows – Direct Method
This page emphasizes the importance of effective cash flow management for business success, illustrating the distinction between revenue, profits, and cash flow. It introduces the statement of cash flows and two preparation methods: direct and indirect. A case study of Watson Ltd. provides detailed financial information, outlining expenses and income while demonstrating the direct method for cash flow statement preparation.
11.6: Summary of Chapter 11 Learning Objectives
This page discusses Chapter 11, which focuses on the statement of cash flows and its significance in showing changes in cash balance. It outlines the three activity sections: operating, investing, and financing, primarily using the indirect method for operations. The chapter stresses the importance of cash sources and uses in decision-making and highlights potential issues in financial management.
11.7: Exercises
This page contains exercises focused on financial transactions and cash flow statements for various companies, including Crozier Manufacturing and Wheaton Co. Ltd. It details activities categorized as operating, financing, or investing, requiring journal entries and calculations.

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