The thirteenth message
1. Why is the Statement of Cash Flows important to U.S. users
of accounting information?
The Statement of Cash Flows is important to U.S. users of accounting
information because this statement reports the net cash flows relating
to operating , investing and financing activities for a period of time.
Stockholders want the main business of the company to increase cash.
U.S. investors respond to changes in cash flows.
Stockholders study cash flow to predict dividends and the long-term
health of the company.
Most dividends are paid in cash.
Liabilities are repaid in cash.
2. Look at the table that compares the direct and indirect methods.
What is the main difference between the indirect and direct methods:
a. in operating activities?
The amount of cash provided by or used by operating activities is
the same no matter which method is used.
However, there is a difference in the way the numbers are obtained. Under the direct method, each non-cash account is examined for the effect of cash received or spent.
Under the indirect method, the GAAP (accrual) net income figure is adjusted up or down to remove the non-cash items included in it. The direct method provides more information for
the user. For example, one line in the direct method statement is "cash provided by customers." This tells you how much the customers bought for cash during the period or how much
they paid on their credit purchases. Under the indirect method the net income is adjusted by how much the accounts receivable account increased or decreased over the period.
b. in investing activities?
No differences.
c. in financing activities?
No differences.
3. How do Japanese companies report their changes in cash during the year?
I think the Japanese companies also do the same as US companies.