Chapter 5
Cash flow, Profitability, and the Cash Flow Statement
Introduction
Accounting instructors disagree as to where in an introductory financial accounting
textbook coverage of the cash flow statement should be placed. Some instructors prefer
the cash flow statement be discussed towards the end of the book, after coverage of the
income statement and balance sheet, which allows students to be fully familiar with
accrual accounting so that they will understand the adjustments to net income required
when using the indirect method of calculating cash from operations. Some instructors
also prefer the late placement so that it is easier to leave out coverage of the cash flow
statement without much disruption to the flow of the course if they decide the topic is not
appropriate. Other instructors prefer coverage in the early chapters of the book because it
provides full coverage of the financial statements early on.
The cash flow chapter has been placed midway through the book to ensure that students
understand the importance of cash flow and the cash flow statement as a source of
information about the entity. The positioning also re-emphasizes the importance of
liquidity. In a time when the income statement and net income are under intense scrutiny
it is important for students to understand the existence and relevance of alternative
measures of performance. It is also important for students to have the counterbalance of
cash flow after they have spent a lot of time coming to understand accrual accounting.
However, it is possible to cover Chapter 5 toward the end of a course. While cash flow is
referred to throughout the book, most of the references will be satisfied with the coverage
of the cash flow statement provided in Chapter 2. By covering Chapter 5 later in the
course it is possible to go into more depth on the adjustments to net income when
reconciling to cash from operations using the indirect method. For example, gains and
losses on disposition of capital assets, write-downs and write-offs, and future income
taxes would be clearer later in the course. The downside of late placement is that it
relegates the cash flow statement to secondary status.
Preparation of the cash flow statement should not be the focus of the chapter. Learning
how to prepare a cash flow statement is very challenging for students, mainly because it
is constructed from the income statement and balance sheet and not directly from
information in the accounting system. Emphasize the understanding of the statement and
try not to dwell on its preparation. The section on preparing a cash flow statement focuses
mainly on the direct method of calculating cash from operations and uses the spreadsheet
approach that was used in Chapter 3.
Some complexities of the indirect method are covered in the chapter but not in the
context of preparing the cash flow statement. For the most part these complexities are
John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual
Page 5-1
Copyright © 2013 McGraw-Hill Ryerson Ltd.
discussed in the section on understanding the cash flow statement. The emphasis is on
helping students understand the reasoning behind the adjustments to net income when
determining cash from operations. Students should understand the indirect method and
why it gives cash from operations it is necessary to understand the nature of the
adjustments.
Learning Objectives
After studying the material in this chapter you will be able to:
LO 1 Explain the importance of cash flow and distinguish cash from operations and net
income.
LO 2 Describe the cash cycle.
LO 3 Describe how an entity’s cash affects how its business operates.
LO 4 Explain the three categories of cash flow reported in the cash flow statement and
identify the types of transactions that apply to each category.
LO 5 Read and interpret the cash flow statement.
LO 6 Explain how manager decisions can affect cash flow information and how accrual
accounting policy choices affect the cash flow statement.
New In This Edition



New chapter introduction
New exhibits: Thomason Reuters Corporation and High Liner Foods (Using
Financial Statements at the end of the chapter)
Several new problems and exercises
Chapter Overview
The main purposes of Chapter 5 are to:
 Explain (again) the difference between cash and accrual accounting and the cash
cycle
 Ensure students understand and can interpret the cash flow statement
 Describe an approach for preparing the cash flow statement
John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual
Page 5-2
Copyright © 2013 McGraw-Hill Ryerson Ltd.
Classroom Icebreakers
Small Groups
1) Structured debates. The objective in a classroom debate is really experiential learning.
A good way to start the discussion is by using a controversial subject. For example,
Rogers Communications spent $55 million on pitcher A.J. Burnett and extended star
pitcher Roy Halladay’s contract through 2010. Pose an issue whether this was a
worthwhile investment. You could substitute professional athletes for musicians,
regional personalities, etc. The issue should be one that has two strong sides. Always
make sure students focus on the accounting issues. In this case, you could ask students to
argue their positions with ideas about future cash inflows and how this contract affects
the Rogers cash flow statement.
Form groups of 5-6 students. Students can be asked to discuss the topic in smaller groups
first and then volunteer to take one side or the other. After 5 minutes ask 2 student
representatives from each group (one supporting the issue and one against) to report back
to the other groups. Students should take notes during this process. Set good limits- time,
subject and decorum – for the debate, and summarize at the end.
2) Interactive anonymous quizzes. Ask students one quantitative multiple choice question
based on the previous lecture material. Allow students 2 minutes to respond on 3 x 5 note
cards. Collect and grade (could lead to participation marks). Finish by leading into a
discussion.
Large Groups
1) Student presentation. In my first year teaching financial accounting a Bulgarian
student did not agree with my method for solving a problem. Consequently I handed her
the chalk. She then proceeded to solve the problem on the blackboard using an approach
that I had never seen before. If students do something up at the front, like solving a
problem or teaching a concept to the others, it may be more memorable. The reason I
know this is because I still remember that day and I am sure many of my former students
would as well. Another variation of this is to give bonus points to students that find
errors in the text or solutions. This challenge will stretch your top students and you will
be fascinated at how many they will find. Of course you would have to know how to do
the question correctly to know that the solution is inaccurate.
2) Case studies. Pairs or teams get a case to read and discuss a case study. Assign roles
to students to helps keep the discussion on track. Use the cases in text or your own. My
two personal favorite cases for this exercise are Jeremy Langer and Ontario Printing Ltd.
Have students reverse or rotate roles to see a different perspective.
John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual
Page 5-3
Copyright © 2013 McGraw-Hill Ryerson Ltd.
Active Learning Techniques
Small Groups
1) Jigsaw. In a small accounting class, a few students may dominate the discussion. The
Jigsaw is an exercise that is best utilized in the mid-point of the course to introduce
diversity in the class room.
Students line up in order of number of years experience in accounting. For example:
- Students with no experience in accounting at one end of the room.
- Students with some experience with accounting in high school next to them.
- Students with some experience from another college or university next to them.
- Matures students that own businesses, entrepreneurs, etc. at the opposite end.
Beginning at the front of the line, number off students 1,2,3,4,5,6,1,2,3, etc. Then have
students regroup by number i.e. all of the 3’s at the back right corner of the room. You
will notice that each group will have someone with various different levels of experience
and knowledge of accounting i.e. a diverse group.
Assign each group a concept to discuss and learn. The group needs to work together to
acquire enough knowledge about the concept to teach others. Students are accountable
to each other for covering the content.
2) think/pair/share. Ask students to think about a question or topic, and then have them
discuss what they have thought or written. They can also be given a problem and then
compare their answer and how they’ve reached them. You can then ask a few groups to
share their conclusion to the whole class. Encourage different types of learning.
Tie this exercise to class participation. Introverted students prefer this format since they
only have to deal with one other student. Think/pair/share is a non-threatening means to
connect active learning to lecture material. Also, students will engage in other’s ideas as
a method of learning.
Large Groups
1) quickwrites / freewrites. These work as a way to begin a discussion, to determine
student knowledge before class, or to get reactions after a lecture. Give students an open
question and ask them to write for 2, 5 or even 10 minutes on the topic. For example,
“what are the various components of cash?” (cash on hand, cash in bank accounts, shortterm investments, etc.)
Allow students to write without editing. Remember two things: tell them how long they
will have and tell them and tell them what you will do with the quickwrite after it’s done.
Then the ways to use quickwrites are numerous: for example, you can ask a few to tell
John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual
Page 5-4
Copyright © 2013 McGraw-Hill Ryerson Ltd.
the class what they have written; ask students to exchange what they have written; or ask
them to write a response to their neighbor’s quickwrites.
2) Academic journals. Two articles that might be useful to instructors are:
“Teaching the Statement of Cash Flows,” Journal of Accounting Education, Vol. 9, 1991,
pp.33-52.
“Using accounting equation analysis to teach the statement of cash flows in the first
financial accounting course,” Journal of Accounting Education, Vol. 18, 2000, pp. 147155.
Lecture Notes
LO1, LO2 Introduction and The Cash Cycle
The section reviews the differences between cash and accrual accounting and introduces
and discusses the cash cycle. The cash cycle is introduced before the discussion of the
cash flow statement so that students can develop an appreciation of how cash flows
through an entity. It is easy for students to ignore the lags that occur between transactions
and economic events and cash flows. These lags are what make cash management so
important for an entity and they can impose significant pressures on the entity and
threaten its survival.
Key points from this section include:
 The cycle by which an entity begins with cash, invests in resources, provides goods or
services to customers using those resources, and then collects cash from customers is
called the cash cycle.
 Entities usually must expend cash before business activities generate cash from
customers.
 There will almost always be a lag between the expenditure of cash and the receipt
of cash from customers. Entities must be able to finance the lag.
 The text introduces the following components of the cash lag: (i) Inventory
conversion period—average number of days it takes to sell inventory. (ii)
Receivables conversion period—average number of days it takes to collect
receivables. (iii) Payables deferral period—number of days inventory is financed
by suppliers (number of days an entity has to pay suppliers). (iv) Inventory selffinancing period—number of days an entity must finance inventory on its own
(through borrowing, internal cash generation).
 The cash cycle varies by industry. Understanding the cash cycle for a particular
industry helps to understand the liquidity and liquidity problems an entity faces.
 Entities have liquidity problems because events don’t unfold as expected. If
business activities met management’s plans or expectations there would be no
cash flow or liquidity problems. These problems arise because more cash than
expected has to be spent or cash inflows don’t occur as expected.
John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual
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Copyright © 2013 McGraw-Hill Ryerson Ltd.
Teaching suggestion: Emphasize the cash accumulation in the two scenarios. Show how
cash accumulates in the stable sales but declines in the declining sales scenario. Simply
reaching a steady state where merchandise sells for more than it cost will allow cash to
accumulate.
Teaching suggestion: An important point made in the example is that the circumstances
that lead to cash flow problems are not always immediately evident to managers. This
point is important because it highlights that the impact of many events on the operation of
an entity is not always obvious. Students need to understand that the impact of events
(economic downturns, business declines, and changes in competitive environment) is
rarely instantaneously known to managers.
____________________
LO4 The Cash Flow Statement: Overview
This section is made up of two parts: An Overview and Specific Activities. The section is
intended to help students understand the information in and presentation of the cash flow
statement. Considerable attention is paid to cash from operations, in particular the
indirect method of calculating CFO. The indirect method is not very intuitive and can
lead to misconceptions about how cash is generated. For example, it is not uncommon to
hear people say the amortization is a source of cash because it is added back to net
income when calculating CFO. The section explains the indirect method schematically
and through examples using the accounting equation spreadsheets. The section also
explains (indirectly because the focus of the section is on the cash flow statement) the
relationship between operating cash flow and the current operating accounts on the
balance sheet.
Key points from this section include:
 Brief descriptions of the three categories of the cash flow statement:
 Cash from operations
 Cash flows from investing activities
 Cash flows from financing activities
 Explanation of what “cash” in the cash flow statement refers to. The definition of
“cash” can vary from entity to entity. In addition to actual currency, the definition of
cash can also include short-term liquid investments and certain types of bank loans.
 Stantec Inc cash flow statement and related notes are discussed to provide a ‘real-life’
example of the issues discussed.
LO4, 5 Understanding the Cash Flow Statement: Specific Activities
Key points from this section include:
 Cash flows from investing and financing activities are discussed first. Explanation
and examples are provided of financing and investing activities. Also Thomson’s
financing and investing activities are discussed.
John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual
Page 5-6
Copyright © 2013 McGraw-Hill Ryerson Ltd.
 The cash flow statement provides information beyond what is provided on the
balance sheet about financing and investing cash flows by separating positive and
negative changes in the balance sheet accounts.
 The cash flow statement only provides information about cash transactions.
Acquisitions and dispositions/retirements of assets and liabilities that do not
involve cash are not reported on the cash flow statement.
 Cash flow from operations (CFO) is defined and discussed from the liquidity
perspective. Negative CFO isn’t necessarily bad news especially for an entity that is
starting up or growing.
 When comparing ASPE to IFRS, it is emphasized that IFRS allows entities to choose
to classify interest payments as either financing or operating activities. However,
ASPE requires interest payments to be classified as CFO.
 The section explains the two methods used for calculating cash from operations: the
direct and indirect methods. Most of the discussion is aimed at helping students
understand how the adjustments to net income seen in most cash flow statements lead
to cash from operations.
 One of the more cruel aspects of financial reporting in Canada is the dominance
of the indirect method of calculating cash from operations. Despite the confusion
that results from the use of the indirect approach (for example, amortization is a
source of cash) and the encouragement of IFRS that the direct method be used,
the indirect method continues to dominate.
 The direct method is more intuitive and probably more informative that the
indirect method. The dominance of the indirect method may be due to the
preference by preparers to show the differences between net income and cash
from operations.
 The section identifies two types of adjustments that must be made when
reconciling from net income to cash from operations:
 First type of adjustment: Removal of transactions and economic events that are
included in the calculation of net income but have no effect on cash flow. These
adjustments include amortization, gains and losses, future income taxes, and
write-offs and write-downs of assets.
Teaching suggestion: The impact of gains and losses on cash from operations can be a
bit difficult to convey at this stage of the book because gains and losses have not been
explained in detail until now. The example in the book uses the sale of land (which
avoids the problem of amortization). Although an example is not shown in the book,
showing the effect of a gain or loss using a spreadsheet would probably shed light on the
issue. Cash flow and gains/losses on amortizable assets can be further explored when
Chapter 8 is covered. The key points to convey are that (i) cash proceeds from the sale of
capital assets are classified as investing activities and (ii) the gain or loss is a non-cash
event that represents the difference between the proceeds from the sale and the net book
value of the asset.
____________________
John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual
Page 5-7
Copyright © 2013 McGraw-Hill Ryerson Ltd.

Second type of adjustment: Adjustment of accrual revenues and expenses so that
the non-cash components are removed and so that operating cash flows that are
not reflected in revenues and expenses are included.
This section also provides students with an approach for preparing a cash flow statement.
The approach builds on the accounting equation spreadsheet methodology used in
Chapter 3.
Key points from this section include:
 The main focus of the section is preparing a cash flow statement. Three examples are
provided focusing on three difference areas: cash collections and revenue; cash
disbursements and wage expense and inventory, AP, COGS.
 The approach used requires reconstruction of the transactions and economic events
that gave rise to the changes from the opening balances in the balance sheet and
income statement accounts to the closing balances in those accounts. This approach is
essentially the same as what is done using the traditional t-account approach to
preparing a cash flow statement.
 The approach is developed using a general equation that allows students to use the
information provided to calculate missing information. The form of the general
equation is:
Ending balance
in the account
= Beginning
balance in the
account
+ Transactions and
economic events
that increase the
balance in the
account
- Transactions and
economic events
that decrease the
balance in the
account
 As noted in the opening comments to this chapter the material in this section can be
omitted, without implications for the rest of the book, by instructors who do not feel it
is appropriate for introductory students.
LO5 Interpreting and Using the Cash Flow Statement
This section provides some insights on interpreting and understanding the information in
the cash flow statement.
Key points from this section include:
 The cash flow statement provides important information about an entity’s ability to
generate cash. Cash generated by operations provides liquidity that can be used for
paying dividends, meeting debt obligations, and purchasing capital assets. The cash
flow statement is a historical statement, not a forecast, so it can only be used as a
starting point for predicting future cash flows. The ability to predict future cash flows
depends on the entity. It’s easier to predict future cash flows for established, stable
entities; predictions will be harder for new, growing, or rapidly changing entities.
 The text shows how the data available in the cash flow statement built using the
indirect method can be used to calculate cash collected from customers and cash
John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual
Page 5-8
Copyright © 2013 McGraw-Hill Ryerson Ltd.
expenses. While this is a rough calculation, it can provide with some insight why cash
flows have declined / increased.
LO5 Other Issues
Key points from this section include:
 Several ratios are introduced to help interpret the cash flow statement.
 Operating cash flows to current liabilities ratio
 Free cash flow
 Figure 5.7 shows cash flow patterns and Figure 5.8 shows patterns of components of
cash flow for several Canadian firms. The emphasis is placed on the fact negative
CFO is not necessarily bad news.
___________________
Teaching suggestion: This section provides the opportunity to emphasize an important
theme of the book, that accounting information does not usually provide answers or
identify definitive problems. Rather, accounting provides clues and warnings about
possible problem areas. This section warns students about jumping to conclusions
regarding negative cash from operations.
____________________
LO6 Impact of Manager Decisions’ on Cash Flow Information and the Effect of
Accrual Accounting Choices on the Cash Flow Statement
This section explains that cash flow information is not free of the effects of management
discretion.
Key points from this section include:
 Cash flow is sometimes seen as a way of avoiding many of the reporting problems
with accrual net income. Cash flow is considered a “clean” number, not subject to the
impact of the accounting choices that managers can use to massage net income. Some
analysts and commentators have suggested the traditional income statement should be
abandoned for a cash flow statement prepared using the direct approach. It would be
nice if the solution to what ails accounting was that easy.
 Cash from operations can be affected by the choices of managers. In accrual
accounting most accounting choices affect the timing of recognition of economic
events. To affect cash from operations managers must alter the timing of cash flows.
 For example, managers can defer expenditures for repairs and maintenance,
advertising, research and development, and promotions. This type of behaviour
directly affects the economic activities of the entity by changing the timing of
transactions (unlike many of the accounting choices in accrual accounting, which just
affect the books). Reducing spending on advertising, research, consulting, repairs and
maintenance, can have significant consequences for an entity. While immediate cash
flow may improve, longer term cash flows may be impaired. Of course these
decisions may alternatively represent good management decisions, so interpreting
changes is spending can be challenging.
John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual
Page 5-9
Copyright © 2013 McGraw-Hill Ryerson Ltd.
 Managers can also delay payments to suppliers, employees, etc. to maintain cash in
the entity.
 The cash flow statement is also affected by how expenditures are accounted for. An
expenditure that is capitalized and amortized appears on the cash flow statement as an
investing activity whereas an expenditure expensed as incurred is included in cash
from operations. This effect is explored more in Chapter 9.
Writing Assignments
Require students to write a 250-500 word essay that they will discuss during the seminar.
Two of my favorite topics are:
1) Which is more important to a shareholder of a private corporation? Cash flow or
income. Explain your answer.
Both income and cash flow are important to the shareholder. The value of the firm is
dependent on the expectation of future profit, but the survival of the firm is dependent on
its ability to meet its financial obligations as they become due. Profit is intended to
provide a broader measure of economic performance than is cash flow while cash flow is
a better indicator of liquidity. The two interests of the shareholder, risk and return, are
informed by profit and cash flow.
Students should also be able to discuss the difference in perspective between a public and
private company shareholder’s perspective. For example, a successful one shareholder
corporation may show no profit because the person in control may be stripping all of the
cash out of the company in the form of wages.
2) Entrepreneurs frequently fail because of poor cash flow. Explain why you think
this occurs. Have students use a local or well known example.
Entrepreneurs require cash outflows to get their ideas up and running. This requires the
purchase of any capital assets (that cannot be partially or fully financed) and to purchase
inventory and supplies, pay employees, rent, utilities, advertising and promotion, other
operating expenses, etc. These cash outflows occur before cash inflows from customers
begin. For instance, a friend of mine owns a McDonald’s franchise. His cash outflow
was approximately $1 million before he sold the first Big Mac to customers at that
location.
The organization must have adequate cash or access to cash to finance the start-up period.
In the case of the McDonald’s franchise the start-up period was approximately 12
months. Even for a well-planned new business, things may not go according to plan
(start-up costs may be greater than expected or the business may not build as quickly as
planned). In these cases, the business may be in great difficulty or may fail if it is unable
to get the cash it needs. The cash lag poses the greatest difficulties during the start-up and
John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual
Page 5-10
Copyright © 2013 McGraw-Hill Ryerson Ltd.
growth periods because of the need for cash inflows and the uncertainty when the
business will begin to generate adequate cash.
Franchises have an advantage of having a proven formula that has been repeated over and
over. Entrepreneurs do not have this advantage if beginning from the ‘grass roots’.
Thus, they should have a significant buffer when starting new enterprises.
Short Cases
Case 1
Rogers Communications had a decrease in cash and cash equivalents in fiscal 2005.
Required
- Why did this take place? Explain with comments on Operating, Investing and
Financing Activities.
- Which of the three sections had the largest year-to-year change from fiscal 2004 to
fiscal 2005? Why?
Solution:
2005 Rogers Communications Inc. Annual Report, Page 100. This gives students a
chance to navigate through a real Consolidated Statement of Cash Flow.
Case 2
In 2005 Trent University in Peterborough, ON presented a net decrease in cash for the
year of $3,718,000 on its Statement of Cash Flows. However on its Statement of
Operations showed a surplus of $245,000.
Required:
- How can an organization show negative cash flows and positive income in the same
year? Explain why with a few examples.
- On the flipside, is it possible to show positive cash flows and negative income in the
same year? Explain why with a few examples.
Solution:
You can use your own institution’s financial statements. The university will be the
organization in which your students’ will have their largest investment as stakeholders. I
refer to the university’s financial statements in every single chapter.
John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual
Page 5-11
Copyright © 2013 McGraw-Hill Ryerson Ltd.
Assignment Topic Grid
Chapter 5
Probl
em
Topic
Difficulty
Q5-1
Cash Accounting Versus
Accrual Accounting
Basic
Q5-2
Net income vs Cash Flow
Basic
Q5-3
Cash Flow In General
Purpose Statements
Basic
Q5-4
Cash Cycle Definitions
Basic
5min
.
5min
.
Basic
5min
.
Q5-5
Q5-6
Q5-7
Q5-8
What is Cash From
Operations?
Indirect method
(amortization vs cash
flows)
Liquidity and Solvency
Entity's Liquidity
Basic
Basic
Basic
Time
5min
.
5min
.
5min
.
5min
.
5min
.
Q5-9
What is More Important?
Cash Flow Or Income?
Basic
5min
.
Q510
Add Back Amortization
(Indirect Method)
Basic
5min
.
LO1: Explain
the importance
of cash flow
and distinguish
cash from
operations and
net income.
LO2:
Describe
the cash
cycle.
LO3:
Describe
how an
entity’s
cash affects
how its
business
operates.
LO4: Explain the three
categories of cash flow
reported in the cash
flow statement and
identify the types of
transactions that apply
to each category.
LO5: Read and
interpret the cash
flow statement.
LO6: Explain how
manager decisions can
affect cash flow
information and how
accrual accounting
policy choices affect the
cash flow statement.
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Copyright © 2013 McGraw-Hill Ryerson Ltd.
Probl
em
Topic
Difficulty
Time
Q511
Add Back Losses And
Subtract Gains
Basic
5min
.
LO1: Explain
the importance
of cash flow
and distinguish
cash from
operations and
net income.

Q512
Reasons For Negative
Cash From Operations
Basic
5min
.
Q513
Cash Flow Or Income?
What Matters To
Managers?
Basic
5min
.
Q514
Q515
Q516
Q517
Q518
Q519
Q520
3 Types Of Activities In
Cash Flow Statement
Cash Flow Problems of
New Businesses
Two Methods For
Calculating Cash From
Operations
Interest Paid Classified in a
Cash Flow Statement
(Impact)
Info provided by Cash flow
statement vs Income
statement
What is the Cash Cycle?
Negative Cash Flow and
Positive profits
Basic
Basic
5min
.
LO2:
Describe
the cash
cycle.

Basic
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Basic
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5min
.
5min
.


5min
.
Basic
LO5: Read and
interpret the cash
flow statement.
LO6: Explain how
manager decisions can
affect cash flow
information and how
accrual accounting
policy choices affect the
cash flow statement.



5min
.
5min
.
5min
.
Basic

LO4: Explain the three
categories of cash flow
reported in the cash
flow statement and
identify the types of
transactions that apply
to each category.


Basic
LO3:
Describe
how an
entity’s
cash affects
how its
business
operates.
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John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual


Page 5-13
Copyright © 2013 McGraw-Hill Ryerson Ltd.
Probl
em
Topic
Difficulty
Time
Q521
Negative Profits and
Positive Cash Flow
Basic
5min
.
Q522
Shorter AR collection
period - impact on cash
flows
Q523
Q524
Q525
Q526
Q527
Q528
Accrual and Cash Flow
Information Analysis
(Wages)
What Does the Term
“Cash” Mean?
Increase Receivables
Implies Decrease In CFO
Decrease inventory Implies
Increase In CFO
Manipulate Cash Flow
Statement
Measurement For Reward
Or Managers’ Bonus
LO1: Explain
the importance
of cash flow
and distinguish
cash from
operations and
net income.
LO2:
Describe
the cash
cycle.
Basic
Basic
Basic
Basic
Basic
Basic
5min
.
5min
.
5min
.
5min
.
5min
.
Q529
Q530
Cash Flow Objectives of
Financial Reporting
Basic
Research Spending
Basic
5min
.
5min
.
Q531
Union Negotiations and
Cash Flow Implications
Basic
5min
.
LO5: Read and
interpret the cash
flow statement.

LO6: Explain how
manager decisions can
affect cash flow
information and how
accrual accounting
policy choices affect the
cash flow statement.
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5min
.
5min
.
LO4: Explain the three
categories of cash flow
reported in the cash
flow statement and
identify the types of
transactions that apply
to each category.


Basic
LO3:
Describe
how an
entity’s
cash affects
how its
business
operates.
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John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual
Page 5-14
Copyright © 2013 McGraw-Hill Ryerson Ltd.
Probl
em
Topic
Difficulty
Time
Q532
Cash Flow Problems For
Golf Course
Basic
5min
.
Q533
Problems Facing Growing
Companies
E5-1
Calculating the Cash Lag
E5-2
Effect of Credit Policy on
Cash Flow
E5-3
Effect Of Amortization On
Cash From Operations
Basic
5min
.
5min
.
Basic
5min
.
Basic
Basic
5min
.
LO1: Explain
the importance
of cash flow
and distinguish
cash from
operations and
net income.
LO2:
Describe
the cash
cycle.
LO3:
Describe
how an
entity’s
cash affects
how its
business
operates.
LO4: Explain the three
categories of cash flow
reported in the cash
flow statement and
identify the types of
transactions that apply
to each category.
LO5: Read and
interpret the cash
flow statement.
LO6: Explain how
manager decisions can
affect cash flow
information and how
accrual accounting
policy choices affect the
cash flow statement.
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E5-4
Effect of Asset Write-Offs
On Cash From Operations
Basic
5min
.
E5-5
Classifying Transactions
For a Cash Flow Statement
Basic
5min
.
E5-6
E5-7
E5-8
Classifying Transactions
For a Cash Flow Statement
Classifying Transactions
For a Cash Flow Statement
Determining Missing
Information
Basic
Basic
Basic
5min
.
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5min
.
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5min
.
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
John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual

Page 5-15
Copyright © 2013 McGraw-Hill Ryerson Ltd.
Probl
em
Topic
Difficulty
Time
E5-9
Calculating Cash From
Operations
Medium
5min
.
E5-10
E5-11
E5-12
E5-13
E5-14
E5-15
E5-16
E5-17
E5-18
Calculating Cash From
Operations
Changes on the BS from
the CF statement
Organize Information into
a Cash Flow Statement
Adjustments to NI when
using indirect method
Comparing Two Cash
Flow Statements
Calculate Cash from
Operations using Indirect
Method
Calcualte Cash Flow from
Operating Activities
Calculate Cash Collections
Calculate Cash Payments
Medium
Medium
Medium
Medium
Medium
Medium
Medium
Medium
Medium
5min
.
LO1: Explain
the importance
of cash flow
and distinguish
cash from
operations and
net income.
LO2:
Describe
the cash
cycle.
LO3:
Describe
how an
entity’s
cash affects
how its
business
operates.
LO4: Explain the three
categories of cash flow
reported in the cash
flow statement and
identify the types of
transactions that apply
to each category.
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5min
.
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5min
.
5min
.
10mi
n.
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
5min
.
5min
.


5min
.
5min
.
LO5: Read and
interpret the cash
flow statement.
LO6: Explain how
manager decisions can
affect cash flow
information and how
accrual accounting
policy choices affect the
cash flow statement.
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John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual

Page 5-16
Copyright © 2013 McGraw-Hill Ryerson Ltd.
Probl
em
Topic
Difficulty
E5-19
Calculate Cash Payments
to Employees
Medium
E5-20
E5-21
P5-1
P5-2
P5-3
Calculate Cash Collections
Impact of the Sale of Land
Calculate Missing
Information (Balance
Sheet)
Calculate Missing
Information (Balance
Sheet)
Inferring cash flow
patterns
P5-5
Inferring cash flow
patterns
Interpreting Cash Flow
Patterns
P5-6
Interpreting Cash Flow
Patterns
P5-4
P5-7
Interpreting Cash Flow
Patterns
Medium
Medium
Medium
Medium
Medium
Time
10mi
n.
10mi
n.
10mi
n.
LO4: Explain the three
categories of cash flow
reported in the cash
flow statement and
identify the types of
transactions that apply
to each category.
5min
.
Difficult
5min
.
5min
.
LO5: Read and
interpret the cash
flow statement.
LO6: Explain how
manager decisions can
affect cash flow
information and how
accrual accounting
policy choices affect the
cash flow statement.
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
10mi
n.
Difficult
Difficult
LO2:
Describe
the cash
cycle.
LO3:
Describe
how an
entity’s
cash affects
how its
business
operates.
10mi
n.
5min
.
5min
.
Difficult
LO1: Explain
the importance
of cash flow
and distinguish
cash from
operations and
net income.
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John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual




Page 5-17
Copyright © 2013 McGraw-Hill Ryerson Ltd.
Probl
em
Topic
Difficulty
Time
P5-8
Impact of Credit Policy on
Cash Flows
Difficult
15mi
n.
P5-9
P5-10
Interest and Dividends
under Different Methods
(IFRS)
Analyzing Cash Flows
Difficult
Difficult
15mi
n.
30mi
n.
LO1: Explain
the importance
of cash flow
and distinguish
cash from
operations and
net income.
LO2:
Describe
the cash
cycle.
P5-12
Organize Information into
a CF statement
Calculating Cash From
Operations
P5-13
Calculating Cash from
Operating (Direct and
Indirect)
P5-14
P5-15
P5-16
P5-17
Interpreting Cash Flow
Statement
Interpreting Cash Flow
Statement
Evalauting impact on
Growth on Performance
and CF
Analyze Cash Flow
Statement of a Family
Difficult
Difficult
Difficult
Difficult
Difficult
Difficult
Difficult
30mi
n.
30mi
n.
30mi
n.
30mi
n.
30mi
n.
30mi
n.
LO4: Explain the three
categories of cash flow
reported in the cash
flow statement and
identify the types of
transactions that apply
to each category.
LO5: Read and
interpret the cash
flow statement.

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

P5-11
LO3:
Describe
how an
entity’s
cash affects
how its
business
operates.
LO6: Explain how
manager decisions can
affect cash flow
information and how
accrual accounting
policy choices affect the
cash flow statement.

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
30mi
n.


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
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
John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual




Page 5-18
Copyright © 2013 McGraw-Hill Ryerson Ltd.
Probl
em
Topic
Difficulty
Time
P5-18
Preparing and Interpreting
Financial Statements
Difficult
30mi
n.
P5-19
P5-20
P5-21
P5-22
P5-23
P5-24
Assessing ability to Pay
Dividend
Impact of events on
Income and CF
Effect of Accrual
Accounting Policies on CF
statement
Accrual and Cash Flow
Information Analysis
Interpreting a Cash Flow
Statement
Comparing the Direct and
Indirect Methods of
Calculating CFOs
Difficult
Difficult
Difficult
Difficult
Difficult
Difficult
LO1: Explain
the importance
of cash flow
and distinguish
cash from
operations and
net income.
LO4: Explain the three
categories of cash flow
reported in the cash
flow statement and
identify the types of
transactions that apply
to each category.

LO5: Read and
interpret the cash
flow statement.




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





30mi
n.
30mi
n.
30mi
n.
30mi
n.
LO6: Explain how
manager decisions can
affect cash flow
information and how
accrual accounting
policy choices affect the
cash flow statement.


30mi
n.
30mi
n.
LO2:
Describe
the cash
cycle.
LO3:
Describe
how an
entity’s
cash affects
how its
business
operates.








John Friedlan, Financial Accounting: A Critical Approach, 4th edition
Instructor’s Manual




Page 5-19
Copyright © 2013 McGraw-Hill Ryerson Ltd.