Accounts

Chapter 16
"How Well Am I Doing?"
Statement of Cash Flows
Solutions to Questions
The purpose of a statement of cash flows is to highlight the major activities that have provided cash and that have used cash during a period and to show the resulting effect on the overall cash balance.
Cash equivalents are short-term, highly liquid investments such as treasury bills, commercial paper, and money market funds. They are included with cash because investments of this type are made solely for the purpose of generating a return on funds that are temporarily idle and they can be easily converted to cash.
(1) Operating activities: Transactions that enter into the determination of net income are generally classified as operating activities. (2) Investing activities: Transactions that are involved in the acquisition or disposition of noncurrent assets are generally classified as investing activities. (3) Financing activities: Transactions (other than the payment of interest) involving bo...