9-193-103
Rev. November 3, 1998
Statements of Cash Flows: Three Examples
John Stacey, a sales engineer for Aldhus Corporation, was worried. A flight delay had caused
him to miss last weeks accounting class in the evening MBA program in which he had enrolled at the
suggestion of the personnel director at Aldhus, a growing manufacturer of computer peripherals. The
class he had missed had been devoted to a lecture and discussion of the statement of cash flows, and
he was sure the material he had missed would be covered in the weekly quiz that was part of each
class session. A classmate had faxed Stacey some notes distributed by their instructor, but they were
too cryptic to be understood by anyone who had missed the class.
In desperation, John called Lucille Barnes, the assistant controller at Aldhus, to ask if she
could take a few minutes to point him in the right direction toward understanding the statement of
cash flows. She seemed delighted by the request, and they agreed to meet that afternoon.
The Meeting
At 2:00 P.M. John Stacey went to the office of Lucille Barnes with his notes and questions.
After they had exchanged greetings, Lucille handed John three cash flow statements from the annual
reports of other high-technology companies (Exhibits 1, 2, and 3). John was worried that Lucille
would ask him to explain them, and that she would see how confused he still was about some aspects
of accounting; instead, Lucille began explaining.
Lucille Barnes (Assistant Controller): The statement of cash flows is really a very useful
part of the set of three statements companies are required to prepare. In some cases, it tells more
about what is actually happening in a business than either the balance sheet or income statement. The
statements of cash flows that I have given you are very revealing. Let me give you a brief overview of
the structure and content of cash flow statements, and then you take some time to study these
statements. I...