Transcript Slide 1

Statement of Cash Flows
The Statement of Cash Flows provides relevant information
about the cash receipts and cash payments of an enterprise during
a period. It provides answers to questions:
1. Where did the cash come from during the period?
2. What was the cash used for during the period?
3. What was the change in the cash balance during the
period?
The Statement of Cash Flows
Content and Format
Three different activities:
Investing,
Operating,
Financing
Illustration 5-24
LO 7 Identify the content of the statement of cash flows.
Statement of Cash Flows
Statement of Cash Flows
Cash flow from Operating Activities
Net income (loss)
Operating
$ (50,000)
Adjustment to reconcile net income to cash:
Depreciation expense
Decreased in Accounts Receivable
Increase in Inventory
Increase in Accounts Payable
Cash from Operations
22,000
2,700
(12,000)
3,000
(34,300)
Cash flow from Investing Activities
Investing
Purchase of Equipment
Sale of plant assets
Sale of land
Cash from Investing Activities
(10,000)
5,400
46,000
41,400
Cash flow from Financing Activities
Financing
Sale of common stock
430,000
Purchase of company stock
(47,000)
Cash from Financing Activities
Net Change in Cash
383,000
$ 390,100
Statement of Cash Flows
Cash Flows from Operating Activities
Reports the cash effects of transactions that enter into
the determination of net income.
The direct method and indirect method are two
different approaches to report cash flows from
operations. Each has its advantages and
disadvantages, but each reconciles to the same number
for total cash flows from operating activities.
The Statement of Cash Flows
Preparation – Indirect Approach
Statement of Cash Flow (in thousands)
Operating activities
Net income
$ 50,000
Depreciation expense
40,000
Increase in Accts Receivable
(10,000)
Increase in Accts Payable
5,000
Cash flow from operations
85,000
Investing activities
Purchase of equipment
(8,000)
Noncash charge
to expenses.
Noncash credit to
revenues.
Financing activities
Proceeds from notes payable
Dividends paid
Cash flow from financing
Increase in cash
20,000
(5,000)
15,000
$ 92,000
LO 8 Prepare a statement of cash flows.
Statement of Cash Flows
Cash Flows from Investing Activities
Reports cash effects of transactions that result in a
change in long-term assets or investment portfolios.
For example:
Buying or selling property, plant, or equipment
Buying or selling financial investment instruments
Statement of Cash Flows
Cash Flows from Financing Activities
Reports cash effects of transactions that result in a change
in long-term liabilities and stockholder’s equity.
For example:
Acquiring or paying down borrowings
Issuing capital stock
Paying dividends to stockholders
Basic Format for the
Statement of Cash Flows
Cash flows from Operating Activities:
Involve the purchase and sale
of products or services
Cash flows from Investing Activities:
Involve the acquisition and sale
of long-term assets
Cash flows from Financing Activities:
Involve the issuance and payment
of long-term liabilities and stock
Net increase in cash
Cash at beginning of year
Cash at end of year
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Statement of Cash Flows
Statement of Cash Flows
Cash flow from Operating Activities
Net income (loss)
Operating
$ (50,000)
Adjustment to reconcile net income to cash:
Depreciation expense
Decreased in Accounts Receivable
Increase in Inventory
Increase in Accounts Payable
Cash from Operations
22,000
2,700
(12,000)
3,000
(34,300)
Cash flow from Investing Activities
Investing
Purchase of Equipment
Sale of plant assets
Sale of land
Cash from Investing Activities
(10,000)
5,400
46,000
41,400
Cash flow from Financing Activities
Financing
Sale of common stock
430,000
Purchase of company stock
(47,000)
Cash from Financing Activities
Net Change in Cash
383,000
$ 390,100
The Statement of Cash Flows
Review
In preparing a statement of cash flows, which of the
following transactions would be considered an investing
activity?
a.
Sale of equipment at book value
b. Sale of merchandise on credit
c.
Declaration of a cash dividend
d. Issuance of bonds payable at a discount
receivable.
LO 8 Prepare a statement of cash flows.
For each of the following transactions, indicate the direction of the cash
flow adjustment [inflow or outflow, add or subtract] and the section
in which each transaction should be reported on a Statement of Cash
Flows [operating, investing, or financing]. Identify non-cash
transactions as supplementary information to be found in the
Footnotes of the Financial Statements.
1) The company purchases its own Common Stock in the open market
answer: Cash Outflow; Financing
2) The company issues Preferred Stock in exchange for Land
answer: Supplementary Information in Footnotes
3) The company borrowed cash from the bank by issuing a 90-day Note
answer: Cash Inflow; Financing
4) Twenty-Year Bonds are issued
answer: Cash Inflow; Financing
5) Accounts Receivable decreased during the year.
answer: Add back to Operating Section
6) Income Tax Payable decreased during the year.
answer: Subtract from Operating Section
7) Accounts Payable increased during the year.
answer: Add back to Operating Section
8) Cash Dividends are declared and paid to Common Stockholders.
answer: Cash Outflow; Financing
9) Common Stock is issued to a creditor to pay off a long term loan.
answer: Supplementary information in Footnotes
10) A new piece of Machinery is acquired with cash.
answer: Cash Outflow; Investing
11) Stock of another company is acquired as an Investment.
answer: Cash Outflow; Investing
12) Interest Payable decreased during the year.
answer: Subtract from Operating Section
13) Wages Payable decreased during the year.
answer: Subtract from Operating Section
14) Gain on Sale of Equipment was recognized in Income.
answer: Subtract from Operating Section
15) Purchased a new Copier by issuing a 90-day Note
answer: Supplementary information in Footnotes
16) Unearned Revenue increased during the year.
answer: Add back to Operating Section
17) Prepaid Insurance increased during the year.
answer: Subtract from Operating Section
18) Sold shares of a long-term investment in Nike Company.
answer: Cash Inflow; Investing
19) Depreciation for Operating Equipment was reported on the Income
Statement
answer: Add back to Operating Section
20) Loss on Sale of Land was reported on the Income Statement.
answer: Add back to Operating Section
21) Net Income on the Income Statement
answer: Operating Section