Chapter 11: Statement of Cash Flows

Operating Activities

Includes cash receipts and cash payments for transactions relating to revenue and expense activities.

Investing Activities

Includes cash transactions involving the purchase and sale of long-term assets and current investments.

Financing Activities

Includes cash transactions resulting from the external financing of a business.

Statement of Cash Flows

A financial statement that measures activities involving cash receipts and cash payments over a period of time.

Direct Method

Adjusts the items on the income statement to directly show the cash inflows and outflows from operations, such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.

Indirect Method

Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.

Cash Return on Assets

Net cash flows from operating activities divided by average total assets; measures the operating cash flow generated per dollar of assets.

Cash Flow to Sales

Net cash flows from operating activities divided by sales revenue; measures the operating cash flow generated per dollar of sales.

Asset Turnover

Net sales divided by average total assets, which measures the sales per dollar of assets invested.

Noncash Activities

Significant investing and financing activities that do not affect cash.