Cash Flows Essay Example for Free

Cash Flows EssayThe statement of cash flows reports the cash receipts, cash payments, and dismiss change in cash resulting from operating, investing, and funding activities during a period (Weygandt, Kimmel, Kieso, 2010, p. 614). Companies are required to prepare a statement of cash flow because it contains important information about the company that deems useful for external sources, such(prenominal) as investors, to make educated decisions about a company. The information contained in the cash flow, such as the companys ability to generate cash and meet obligations, assists reference pointors and investors to determine the adequate decision regarding extending credit or investing. The statement of cash flows is divided into three sections Operating activities, investing activities, and financing activities (Weygandt, et al, 2010). Each of these sections put on reflect their own characteristics of transactions and other events. First, operating activities include transac tions that create revenues and expenses these are include in the determination of net income (Weygandt, et al, 2010).Second, investing activities has two purposes includes the acquisition and disposing of investments and property, plant, and equipment, and lending money and collecting the loans (Weygandt, et al, 2010). Third, financing activities include two purposes obtaining cash from issuing debt and repaying the amounts borrowed, and obtaining cash from stockholders, repurchasing shares, and paying dividends (Weygandt, et al, 2010, p. 615). Operating activities, which include income statement items are Cash inflows from bargain of goods and services, and from interest received from dividends received Cash outflows to suppliers for inventory, employees for services, and others for expenses (Weygandt, Kimmel, Kieso, 2010, p. 616). Investing activities investments and semipermanent assets Cash inflows from sale of property, plant, and equipment, and collections on loans to ot her entities Cash outflows to purchase property, plant, and equipment, purchase investments in debt, and making loans to other entities (Weygandt,Kimmel, Kieso, 2010, p. 616). Financing activities involves semipermanent liabilities and stockholders equity Cash inflows from sale of common stock, and from issuance of long-term debt Cash outflows to stockholders as dividends, and to redeem long-term debt or reacquire capital stock (Weygandt, Kimmel, Kieso, 2010, p. 616).ReferencesWeygandt, J. J., Kimmel, P. D., Kieso, D. E. (2010). Financial accounting (7th ed.). Retrieved from The University of Phoenix eBook Collection database.