Topic Outline:

 1. Categories of Cash Flow

• Operating

• Investing

• Financing

 2. Financial Statement Articulation

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Definition of Terms:

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Cash Flow Statement – is a financial document that tracks a company's cash inflows and outflows over a specific period. Unlike other statements that use accrual accounting, the cash flow statement focuses solely on actual cash movements. This provides valuable insights into a company's cash management and liquidity, highlighting its ability to meet its short-term obligations.
Operating Cash Flow –  refers to the cash generated by a company's core business activities during a specific period. In simpler terms, it shows the cash a company brings in from selling its products or services, minus the cash it spends on expenses related to those activities (like paying employees and suppliers).  It's a key indicator of a company's ability to generate cash from its normal operations.
Investing Cash Flow –  Investing cash flow refers to the monetary movement resulting from a company's investment activities, encompassing both cash inflows and outflows. These activities typically include transactions such as the acquisition or sale of property, plant, and equipment, buying or selling securities, as well as engaging in business acquisitions or divestitures.
Financing Cash Flow - Financing cash flow is a category of cash flow in a company's financial statements that reflects the inflow and outflow of cash related to financing activities.
Financial Articulation - is the process of ensuring that the information presented in different financial statements is consistent and interconnected. It involves aligning figures across statements like the balance sheet, income statement, and cash flow statement to verify accuracy and reliability.
Balance Sheet - A balance sheet is a financial statement that contains details of a company’s assets or liabilities at a specific point in time. It serves as reference documents for investors and other stakeholders to get an idea of the financial health of an organization.

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Cash Flow Statement:

I. What is a Statement of Cash Flows:
The statement of cash flows is a crucial financial statement that provides insights into a company's cash inflows and outflows during a specific period. It reconciles the overall change in an organization's cash position, offering a clear picture of its liquidity and cash management. Unlike other financial statements prepared using accrual accounting, the statement of cash flows focuses solely on cash transactions, making it invaluable for understanding the actual cash resources and needs of the organization.

The statement of cash flows categorizes cash flows into three main categories:

 

1. Operating Cash Flow - Represents the cash flows from the central operations of the organization. This includes cash inflows from customers, cash outflows to employees and suppliers, and cash flows for interest and taxes. There are two common methods used to present the operating section of the cash flow statement: the direct method and the indirect method.

A. Indirect Method:  The Indirect Method is one of the two commonly used methods to present the operating section of the cash flow statement. It involves adjusting net income to reconcile to operating cash flow. This adjustment includes: 
○ Adding back non-cash expenses such as depreciation, amortization, and stock compensation.

○Removing non-operating gains (subtract) and losses (add) such as gains and losses on investments or property and equipment.

○ Adjusting for changes in operating assets and liabilities, such as accounts receivable, inventory, accounts payable, and accrued liabilities interest payable, and taxes payable.
     - Increases in operating assets AND decreases in operating liabilities are subtracted.
     - Decreases in operating assets AND increases in operating liabilities are added.