Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 12 - Statement of Cash Flows - Questions - Page 662: 8


Step1: All the products and companies go through a series of phases called the product life cycle. Phases of Product Life Cycle in order of their occurrence are as follows: a) Introductory Phase b) Growth Phase c) Maturity Phase d) Decline Phase Step2: - During Introductory phase, cash provided by both operating and investing activities are negative, and cash from financing activities is positive. - During growth Stage, cash provided by the operating activities becomes positive but the cash is not sufficient to meet the investing needs. - During the maturity Stage, cash provided by operating activities exceeds investing needs, and also the company start to retire its debt to pay off. - During the decline Stage, Cash provided by operating activities is reduced, cash from investing becomes positive as most of the assets are sold and cash from financing becomes more negative.

Work Step by Step

a) Introductory Phase is the phase which occurs when a company is started and when it is purchasing fixed assets and beginning to produce and sell products. b) In the Growth Phase, company is striving to expand its production and sales. c) In the Maturity Phase, companies do not purchase more of assets and the sales and production level is also expanded upto a limit. d) During the Decline Phase, Product sales also starts declining due to a weakening in consumer demand. Step2: Effect of each phase on the numbers reported in a statement of cash flows
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