12-1. 12-2 Statement of Cash Flows Kimmel ● Weygandt ● Kieso Financial Accounting, Eighth Edition 12

12-1

12-2

Statement of Cash Flows

Kimmel ● Weygandt ● KiesoFinancial Accounting, Eighth Edition

12

12-3

CHAPTER OUTLINE

Discuss the usefulness and format of the statement of cash flows.

1

Prepare a statement of cash flows using the indirect method.

2

LEARNING OBJECTIVES

Use the statement of cash flows to evaluate a company.

3

12-4

Provides information to help assess:

1. Entity’s ability to generate future cash flows.

2. Entity’s ability to pay dividends and meet obligations.

3. Reasons for difference between net income and net cash

provided (used) by operating activities.

4. Cash investing and financing transactions during the

period.

USEFULNESS OF THE STATEMENT OF CASH FLOWS

LEARNING OBJECTIVE

Discuss the usefulness and format of the statement of cash flows.1

LO 1

12-5

Income

Statement Items

Operating Activities

Changes in Investments

and Long-Term Assets

Investing Activities

Changes in Long-Term

Liabilities and Stockholders’

Equity

Financing Activities

CLASSIFICATION OF CASH FLOWS

LO 1

12-6

Operating activities—Income statement items

Cash inflows:

From sale of goods or services.

From interest received and dividends received.

Cash outflows:

To suppliers for inventory.

To employees for wages.

To government for taxes.

To lenders for interest.

To others for expenses.

LO 1

ILLUSTRATION 12-1 Typical receipt and payment classifications


12-7

Investing activities—Changes in investments and long-term assets

Cash inflows:

From sale of property, plant, and equipment.

From sale of investments in debt or equity securities of other entities.

From collection of principal on loans to other entities.

Cash outflows:

To purchase property, plant, and equipment.

To purchase investments in debt or equity securities of other entities.

To make loans to other entities.LO 1



12-8

Financing activities—Changes in long-term liabilities and stockholders’ equity

Cash inflows:

From sale of common stock.

From issuance of debt (bonds and notes).

Cash outflows:

To stockholders as dividends.

To redeem long-term debt or reacquire

capital stock (treasury stock).

LO 1



12-9

1. Direct issuance of common stock to purchase assets.

2. Conversion of bonds into common stock.

3. Issuance of debt to purchase assets.

4. Exchanges of plant assets.

Companies report noncash activities in either a

separate schedule (bottom of the statement) or

separate note to the financial statements.

SIGNIFICANT NONCASH ACTIVITIES

LO 1

12-10

Net What?

LO 1

ACCOUNTING ACROSS THE ORGANIZATION

12-11

Order of Presentation:

1. Operating activities.

2. Investing activities.

3. Financing activities.

Direct Method

Indirect Method

FORMAT OF THE STATEMENT OF CASH FLOWS

LO 1

12-12 LO 1

ILLUSTRATION 12-2Format of statement of cash flows

12-13

Illustration: Classify each of these transactions by type of cash flow activity.

1. Issued 100,000 shares of $5 par value common stock for $800,000 cash.

2. Borrowed $200,000 from Castle Bank, signing a 5-year note bearing 8% interest.

3. Purchased two semi-trailer trucks for $170,000 cash.

4. Paid employees $12,000 for salaries and wages.

5. Collected $20,000 cash for services performed.

Financing

Financing

Investing

Operating

Operating

LO 1

Cash Flow ActivitiesDO IT! 1

12-14

Three sources of information:

1. Comparative balance sheets

2. Current income statement

3. Additional information

LO 2

LEARNING OBJECTIVE

Prepare a statement of cash flows using the indirect method.2

12-15

Three Major Steps:

LO 2

Preparing the Statement of Cash Flows

ILLUSTRATION 12-3Three major steps in preparingthe statement of cash flows

12-16 LO 2

Three Major Steps:



12-17 LO 2

Three Major Steps:



12-18

Companies favor the indirect method for two reasons:

1. Easier and less costly to prepare.

2. Focuses on differences between net income and net cash

flow from operating activities.

INDIRECT AND DIRECT METHODS

LO 2

12-19

INDIRECT METHOD

ILLUSTRATION 12-4Comparative balance sheets, income statement, and additional information for Computer Services Company

LO 2

12-20

ILLUSTRATION 12-4Comparative balance sheets, income statement, and additional information for Computer Services Company

LO 2

12-21

Additional information for 2017:1. Depreciation expense was comprised of $6,000 for building and $3,000 for

equipment.2. The company sold equipment with a book value of $7,000 (cost $8,000, less

accumulated depreciation $1,000) for $4,000 cash.3. Issued $110,000 of long-term bonds in direct exchange for land.4. A building costing $120,000 was purchased for cash. Equipment costing $25,000

was also purchased for cash.5. Issued common stock for $20,000 cash.6. The company declared and paid a $29,000 cash dividend.

ILLUSTRATION 12-4

Change in2017 2016 Account Balance

LO 2

12-22

DETERMINE NET CASH PROVIDED/USED BY OPERATING ACTIVITIES BY CONVERTING NET INCOME FROM ACCRUAL BASIS TO CASH BASIS.

Common adjustments to Net Income (Loss):

Add back noncash expenses (depreciation, amortization,

or depletion expense).

Deduct gains and add losses.

Analyze changes to noncash current asset and current

liability accounts.

STEP 1: OPERATING ACTIVITIES

LO 2

12-23

Which is an example of a cash flow from an operating

activity?

a. Payment of cash to lenders for interest.

b. Receipt of cash from the sale of capital stock.

c. Payment of cash dividends to the company’s

stockholders.

d. None of the above.

Review Question


LO 2

12-24

Depreciation Expense

Although depreciation expense reduces net income, it does

not reduce cash. The company must add it back to net

income.

Cash flows from operating activities:

Net income 145,000$

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation expense 9,000

Net cash provided by operating activities 154,000$


ILLUSTRATION 12-6Adjustment for depreciation

LO 2

12-25

Companies report as a source of cash in the investing

activities section the actual amount of cash received from

the sale.

Any loss on disposal is added to net income in the

operating section.

Any gain on disposal is deducted from net income in the

operating section.


Loss on Disposal of Plant Assets

LO 2

12-26


Net income 145,000$




Loss on disposal of plant assets 3,000


LO 2


Loss on Disposal of Plant Assets

ILLUSTRATION 12-7Adjustment for loss on disposal of plant assets

12-27

CHANGES TO NONCASH CURRENT ASSET

When the Accounts Receivable balance decreases, cash

receipts are higher than revenue earned under the accrual basis.

Company adds to net income the

amount of the decrease in accounts

receivable.

Accounts Receivable

1/1/017 Balance 30,000Sales Revenue 507,000

Receipts from customers 517,000

12/31/17 Balance 20,000

LO 2


ILLUSTRATION 12-8Analysis of accounts receivable

12-28


Net income 145,000$





Decrease in accounts receivable 10,000


LO 2



ILLUSTRATION 12-9Adjustments for changes incurrent asset accounts

12-29

When the Inventory balance increases, the cost of

merchandise purchased exceeds the cost of goods sold.

Inventory

1/1/17 Balance 10,000Purchases 155,000

Cost of goods sold 150,000

12/31/17 Balance 15,000

Cost of goods sold does not reflect cash payments made for

merchandise. The company deducts from net income this

inventory increase.

LO 2



12-30


Net income 145,000$






Increase in inventory (5,000)


LO 2



ILLUSTRATION 12-9Adjustments for changes incurrent asset accounts

12-31

When the Prepaid Expense balance increases, cash paid for

expenses is higher than expenses reported on an accrual

basis. The company deducts the increase from net income to

arrive at net cash provided by operating activities.

If prepaid expenses decrease, reported expenses are higher

than the expenses paid.

LO 2



12-32


Net income 145,000$







Increase in prepaid expenses (4,000)


LO 2



ILLUSTRATION 12-9Adjustments for changes in current asset accounts

12-33

CHANGES IN CURRENT LIABILITIES

When Accounts Payable increases, the company received

more in goods than it actually paid for. The increase is added

to net income to determine net cash provided by operating

activities.

When Income Taxes Payable decreases, the income tax

expense reported on the income statement was less than the

amount of taxes paid during the period. The decrease is

subtracted from net income to determine net cash provided by

operating activities.

LO 2


12-34


Net income 145,000$







Increase in prepaid expenses (4,000)

Increase in accounts payable 16,000

Decrease in income taxes payable (2,000)


LO 2

CHANGES IN CURRENT LIABILITIES


ILLUSTRATION 12-10Adjustments for changes in current liability accounts

12-35

SUMMARY OF CONVERSION TO NET CASH PROVIDED BY OPERATING ACTIVITIES—INDIRECT METHOD

LO 2


ILLUSTRATION 12-11Adjustments required to convertnet income to net cash providedby operating activities

12-36

The Missing Control

Independent internal verification. Internal auditors at the company should have independently verified bank accounts and major transfers of cash to outside companies that were controlled by the Tanzi family.

Total take: Billions of dollars

ANATOMY OF A FRAUD

For more than a decade, the top executives at the Italian dairy products company Parmalat engaged in multiple frauds that overstated cash and other assets by more than $1 billion while understating liabilities by between $8 and $12 billion. Much of the fraud involved creating fictitious sources and uses of cash. Some of these activities incorporated sophisticated financial transactions with subsidiaries created with the help of large international financial institutions. However, much of the fraud employed very basic, even sloppy, forgery of documents. For example, when outside auditors requested confirmation of bank accounts (such as a fake $4.8 billion account in the Cayman Islands), documents were created on scanners, with signatures that were cut and pasted from other documents. These were then passed through a fax machine numerous times to make them look real (if difficult to read). Similarly, fictitious bills were created in order to divert funds to other businesses owned by the Tanzi family (who controlled Parmalat).

LO 2

12-37

Josh’s PhotoPlus reported net income of $73,000 for 2017. Included in the income statement were depreciation expense of $7,000 and a gain on disposal of plant assets of $2,500. Josh’s comparative balance sheets show the following balances.

12/31/17 12/31/16

Accounts receivable $21,000 $17,000

Accounts payable 2,200 6,000

Calculate net cash provided by operating activities for Josh’s PhotoPlus.

LO 2

Net Cash Provided by Operating ActivitiesDO IT! 2a

12-38

Josh’s PhotoPlus reported net income of $73,000 for 2017, which included depreciation expense of $7,000 and a gain on disposal of plant assets of $2,500. Accounts receivable increased $4,000 and accounts payable decreased by $3,800. Calculate net cash provided by operating activities.

Net Cash Provided by Operating ActivitiesDO IT! 2a

LO 2

12-39

Company purchased land of $110,000 by issuing long-term

bonds. This is a significant noncash investing and financing

activity that merits disclosure in a separate schedule.

Land

1/1/17 Balance 20,000Issued bonds 110,000

12/31/17 Balance 130,000

Bonds Payable

1/1/17 Balance 20,000For land 110,000

12/31/17 Balance 130,000

STEP 2: INVESTING AND FINANCING ACTIVITIES

LO 2

12-40

Net cash provided by operating activities 172,000 Cash flows from investing activities:

Purchase of building (120,000) Purchase of equipment (25,000) Sale of equipment 4,000

Net cash used by investing activities (141,000) Cash flows from financing activities:

Issuance of common stock 20,000 Payment of cash dividends (29,000)

Net cash used by financing activities (9,000) Net increase in cash 22,000 Cash at beginning of period 33,000 Cash at end of period 55,000$

Disclosure: Issuance of bonds to purchase land 110,000$

Partial statement

LO 2


ILLUSTRATION 12-13Statement of cash flows, 2017—indirect method

12-41

From the additional information, the company acquired an office

building for $120,000 cash. This is a cash outflow reported in

the investing section.

1/1/17 Balance 40,000Office building 120,000

12/31/17 Balance 160,000

Building

LO 2


12-42







Partial statement

LO 2



12-43

The additional information explains that the equipment increase

resulted from two transactions: (1) a purchase of equipment of

$25,000, and (2) the sale for $4,000 of equipment costing $8,000.

1/1/17 Balance 10,000Purchase 25,000

12/31/17 Balance 27,000

Equipment sold 8,000

Cash 4,000

Accumulated Depreciation 1,000

Loss on Disposal of Plant Assets 3,000

Equipment 8,000

Journal Entry

Equipment

Illustration 12-12

LO 2


12-44

Cash flows from operating activities:Net income 145,000$

Adjustments to reconcile net income to net cashprovided by operating activities:

Depreciation expense 9,000 Loss on disposal of plant assets 3,000 Decrease in accounts receivable 10,000 Increase in inventory (5,000) Increase in prepaid expenses (4,000) Increase in accounts payable 16,000 Decrease in income taxes payable (2,000)







Indirect Method

LO 2


12-45

The increase in common stock resulted from the issuance of

new shares.

1/1/17 Balance 50,000Shares sold 20,000

12/31/17 Balance 70,000

Common Stock

LO 2


12-46







Partial statement



LO 2

12-47

Retained earnings increased $116,000 during the year. This

increase can be explained by two factors: (1) Net income of

$145,000 increased retained earnings, and (2) Dividends of

$29,000 decreased retained earnings.

1/1/17 Balance 48,000Net income 145,000

12/31/17 Balance 164,000

Dividends 29,000

Retained Earnings

LO 2


12-48

Cash flows from operating activities:Net income 145,000$

Adjustments to reconcile net income to net cashprovided by operating activities:

Depreciation expense 9,000 Loss on disposal of plant assets 3,000 Decrease in accounts receivable 10,000 Increase in inventory (5,000) Increase in prepaid expenses (4,000) Increase in accounts payable 16,000 Decrease in income taxes payable (2,000)






Indirect Method



LO 2

12-49

Which is an example of a cash flow from an investing activity?

a. Receipt of cash from the issuance of bonds payable.

b. Payment of cash to repurchase outstanding capital stock.

c. Receipt of cash from the sale of equipment.

d. Payment of cash to suppliers for inventory.


Review Question

LO 2

12-50

Compare the net change in cash on the Statement of Cash

Flows with the change in the cash account reported on the

Balance Sheet to make sure the amounts agree.

STEP 3: NET CHANGE IN CASH

2017 2016

ILLUSTRATION 12-4Comparative balance sheets (partial) for Computer Services Company

LO 2

12-51

Burning Through Our Cash

Box (cloud storage), Cyan (game creator), Fireeye (cyber security), and Mobile Iron (mobile security of data) are a few of the tech companies that recently have issued or are about to issue stock to the public. Investors now have to determine whether these tech companies have viable products and high chances for success. An important consideration in evaluating a tech company is determining its financial flexibility—its ability to withstand adversity if an economic setback occurs. One way to measure financial flexibility is to assess a company’s cash burn rate, which determines how long its cash will hold out if the company is expending more cash than it is receiving. Fireeye, for example, burned cash in excess of $50 million in 2013. But the company also had over $150 million as a cash cushion, so it would take over 30 months before it runs out of cash. And even though Box has a much lower cash burn rate than Fireeye, it still has over a year’s cushion. Compare that to the tech companies in 2000, when over one-quarter of them were on track to run out of cash within a year. And many did. Fortunately, the tech companies of today seem to be better equipped to withstand an economic setback.

Source: Shira Ovide, “Tech Firms’ Cash Hoards Cool Fears of a Meltdown,” Wall Street Journal (May 14, 2014).

ACCOUNTING ACROSS THE ORGANIZATION

LO 2

12-52

Impact

of product

life cycle on

cash flows.

THE CORPORATE LIFE CYCLE

LEARNING OBJECTIVE

Use the statement of cash flows to evaluate a company.3

ILLUSTRATION 12-14

LO 3

12-53

INVESTOR INSIGHT

Listed here are amounts (in millions) of net income and net cash

provided (used) by operating, investing, and financing activities for a

variety of companies at one time. The final column suggests the

companies’ likely phases in the life cycle based on these figures.

Operating with Negative Cash

LO 3

12-54

Free cash flow describes the cash remaining from

operations after adjustment for capital expenditures and

dividends.

LO 3

FREE CASH FLOW

ILLUSTRATION 12-15Free cash flow

12-55

$59,713

Less: Expenditures on property, plant, and equipment 9,571

Dividends paid 11,126

$39,016

Required: Calculate Microsoft’s free cash flow.

Cash provided by operating activities

Free cash flow

LO 3

ILLUSTRATION 12-16Apple’s cash flowinformation ($ in millions)

FREE CASH FLOW

ILLUSTRATION 12-17Calculation of Apple’s free cash flow ($ in millions)

12-56

1. Compute net cash provided by operating activities by

adjusting each item in the income statement from the

accrual basis to the cash basis.

2. Companies report only major classes of operating

cash receipts and cash payments.

3. For these major classes, the difference between

cash receipts and cash payments is the net cash

provided by operating activities.

LO 4

LEARNING OBJECTIVE

APPENDIX 12A: Prepare a statement of cash flows using the direct method.4

12-57 LO 4


Illustration 12A-2Major classes of cash receipts and payments

12-58

DIRECT METHOD

ILLUSTRATION 12A-1Comparative balance sheets, income statement, and additional information for Computer Services Company

LO 4

12-59

ILLUSTRATION 12A-1Comparative balance sheets, income statement, and additional information for Computer Services Company

LO 4

12-60

Additional information for 2017:1. Depreciation expense was comprised of $6,000 for building and $3,000 for

equipment.2. The company sold equipment with a book value of $7,000 (cost $8,000, less

accumulated depreciation $1,000) for $4,000 cash.3. Issued $110,000 of long-term bonds in direct exchange for land.4. A building costing $120,000 was purchased for cash. Equipment costing $25,000

was also purchased for cash.5. Issued common stock for $20,000 cash.6. The company declared and paid a $29,000 cash dividend.

ILLUSTRATION 12A-1

Change in2017 2016 Account Balance

LO 4

12-61

Accounts Receivable

1/1/017 Balance 30,000

Sales revenue 507,000

Receipts from customers 517,000

12/31/17 Balance 20,000

LO 4


ILLUSTRATION 12A-4Analysis of accounts receivable

ILLUSTRATION 12A-5Formula to compute cash receipts from customers—direct method

CASH RECEIPTS FROM CUSTOMERS

For Computer Services, accounts receivable decreased

$10,000.

12-62

CASH PAYMENTS TO SUPPLIERS

In 2017, Computer Services Company’s inventory increased

$5,000 and cash payments to suppliers were $139,000.

Inventory

1/1/17 Balance 10,000

Purchases 155,000

Cost of goods sold 150,000

12/31/17 Balance 15,000

Accounts Payable

Payment to suppliers 139,000 1/1/17 Balance 12,000

12/31/17 Balance 28,000

Purchases 155,000

LO 4


ILLUSTRATION 12A-8Analysis of accounts payable

12-63

Illustration 12A-9Formula to compute cash payments to suppliers—direct method

LO 4


CASH PAYMENTS TO SUPPLIERS

In 2017, Computer Services Company’s inventory increased

$5,000 and cash payments to suppliers were $139,000.

12-64

CASH PAYMENTS FOR OPERATING EXPENSES

Cash payments for operating expenses were $115,000.

LO 4


ILLUSTRATION 12A-10Computation of cash payments for operating expenses

ILLUSTRATION 12A-11Formula to compute cash payments for operating expenses—direct method

12-65

1/1/17 Balance 0

12/31/17 Balance 0

Interest expense42,000

CASH PAYMENTS FOR INTEREST

In 2017, Computer Services’ had interest expense of $42,000.

Cash paid for interest 42,000

Interest Payable

LO 4


12-66

1/1/17 Balance 8,000Income tax expense47,000

12/31/17 Balance 6,000

Cash paid for taxes 49,000

CASH PAYMENTS FOR INCOME TAXES

Cash payments for income taxes were $49,000.

Income Tax Payable

LO 4


ILLUSTRATION 12A-13Formula to compute cash payments for income taxes—direct method

12-67

Illustration 12A-14Operating activities section of the statement of cash flows

LO 4


12-68

Accumulated Depreciation

1/1/17 Balance 1,000

12/31/17 Balance 3,000

Depreciation expense3,000

Equipment sold 1,000

Equipment

1/1/17 Balance 10,000

12/31/17 Balance 27,000

Purchases 25,000Cost of equipment sold 8,000

Increase in Equipment. (1) Equipment purchased for $25,000,

and (2) equipment sold for $4,000, cost $8,000, book value

$7,000.Illustration 12A-15Analysis of equipment

LO 4


12-69

Cash 4,000

Accumulated Depreciation—Equipment 1,000

Loss on Disposal of Plant Assets 3,000

Equipment 8,000

Increase in Equipment. (1) Equipment purchased for $25,000,

and (2) equipment sold for $4,000, cost $8,000, book value

$7,000.

LO 4


12-70

Increase in Land. Land increased

$110,000. The company purchased

land of $110,000 by issuing bonds.

Significant noncashinvesting and financing

transaction.

Increase in Bonds Payable. Bonds

Payable increased $110,000. The

company acquired land by

exchanging bonds for land.

Significant noncashinvesting and financing

transaction.

Increase in Building. Acquired

building for $120,000 cash.Investing

transaction.

LO 4


12-71

Increase in Common Stock.

Increase in Common Stock of

$20,000. Increase resulted from the

issuance of new shares of stock.

Increase in Retained Earnings. The

$116,000 net increase in Retained

Earnings resulted from net income of

$145,000 and the declaration and

payment of a cash dividend

of $29,000.

Financing transaction

(cash dividend)

Financing transaction.

LO 4


12-72 LO 4

Illustration 12A-16Statement of cash flows, 2017—direct method

12-73

Compare the net change in cash on the Statement of Cash

Flows with the change in the cash account reported on the

Balance Sheet to make sure the amounts agree.

LO 4

STEP 3: NET CHANGE IN CASH

ILLUSTRATION 12A-1Comparative balance sheets (partial) for Computer Services Company

12-74

The change in cash is equal to the change in all of the other

balance sheet accounts.

If we analyze the changes in all of the noncash balance

sheet accounts, we will explain the change in the cash

account.

LO 5

LEARNING OBJECTIVE

APPENDIX 12B: Use the T-account approach to prepare a statement of cash flows.

5

12-75 LO 5

Illustration 12B-1T-account approach

12-76

KEY POINTS

A Look at IFRS

LEARNING OBJECTIVE

Compare the procedures for the statement of cash flows under GAAP and IFRS.

6

Similarities

Companies preparing financial statements under IFRS must prepare a statement of cash flows as an integral part of the financial statements.

Both IFRS and GAAP require that the statement of cash flows should have three major sections—operating, investing, and financing—along with changes in cash and cash equivalents.

LO 6

12-77

Similarities

Similar to GAAP, the cash flow statement can be prepared using either the indirect or direct method under IFRS. In both U.S. and international settings, companies choose for the most part to use the indirect method for reporting net cash flows from operating activities.

The definition of cash equivalents used in IFRS is similar to that used in GAAP. A major difference is that in certain situations, bank overdrafts are considered part of cash and cash equivalents under IFRS (which is not the case in GAAP). Under GAAP, bank overdrafts are classified as financing activities in the statement of cash flows and are reported as liabilities on the balance sheet.

A Look at IFRS

LO 6

12-78

Differences

IFRS requires that noncash investing and financing activities be excluded from the statement of cash flows. Instead, these noncash activities should be reported elsewhere. This requirement is interpreted to mean that noncash investing and financing activities should be disclosed in the notes to the financial statements instead of in the financial statements. Under GAAP, companies may present this information on the face of the statement of cash flows.

A Look at IFRS

LO 6

12-79

Differences

One area where there can be substantial differences between IFRS and GAAP relates to the classification of interest, dividends, and taxes. The following table indicates the differences between the two approaches.

A Look at IFRS

LO 6

12-80

Differences

Under IFRS, some companies present the operating section in a single line item, with a full reconciliation provided in the notes to the financial statements. This presentation is not seen under GAAP.

A Look at IFRS

LO 6

12-81

A Look at IFRS

LOOKING TO THE FUTURE

Presently, the FASB and the IASB are involved in a joint project on the presentation and organization of information in the financial statements. One interesting approach, revealed in a published proposal from that project, is that in the future the income statement and balance sheet would adopt headings similar to those of the statement of cash flows. That is, the income statement and balance sheet would be broken into operating, investing, and financing sections.

LO 6

12-82

IFRS Practice

Under IFRS, interest paid can be reported as:

a) only a financing element.

b) a financing element or an investing element.

c) a financing element or an operating element.

d) only an operating element.

A Look at IFRS

LO 6

12-83

IFRS Practice

IFRS requires that noncash items:

a) be reported in the section to which they relate, that is,

a noncash investing activity would be reported in the

investing section.

b) be disclosed in the notes to the financial statements.

c) do not need to be reported.

d) be treated in a fashion similar to cash equivalents.

A Look at IFRS

LO 6

12-84

IFRS Practice

In the future, it appears likely that:

a) the income statement and balance sheet will have

headings of operating, investing, and financing, much like

the statement of cash flows.

b) cash and cash equivalents will be combined in a single line

item.

c) the IASB will not allow companies to use the direct

approach to the statement of cash flows.

d) None of the above.

A Look at IFRS

LO 6

12-85

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Documents

12-1. 12-2 Statement of Cash Flows Kimmel ● Weygandt ● Kieso Financial Accounting, Eighth Edition 12