The statement of cash flows is one of the four main statements required in the preparation of a company's financial statements.
(a) Explain what the purpose is of the statement of cash flows, and identify at least three reasons users might find it helpful.
(b) What is the definition of cash? What can be included in cash equivalents? How are bank overdrafts treated? State any differences between IFRS and ASPE.
(c) Identify and describe the three categories of activities that must be reported in the statement of cash flows. What is the relationship between these activities and a company's statement of financial position?
(d) Identify two methods of reporting cash flows from operations. Are both permitted under GAAP? Explain. Which method do you prefer? Why?
(e) Provide two examples of a non-cash investing and financing transaction, and describe the financial reporting requirements for such transactions.
(f) Assume that you overhear the following comment by an investor in the stock market: "You can't always trust the net income number reported, because of all the estimates and judgement that go into its determination. That's why I only look at the cash flow from operations in analyzing a company." Comment.