Presentation is loading. Please wait.

Presentation is loading. Please wait.

CHAPTER TWENTY-FIVE STATEMENT OF CASH FLOWS.  Purpose: To provide information about how cash was generated and used during the period  Divides cash.

Similar presentations


Presentation on theme: "CHAPTER TWENTY-FIVE STATEMENT OF CASH FLOWS.  Purpose: To provide information about how cash was generated and used during the period  Divides cash."— Presentation transcript:

1 CHAPTER TWENTY-FIVE STATEMENT OF CASH FLOWS

2  Purpose: To provide information about how cash was generated and used during the period  Divides cash related activities into three categories: oOperating Activities oInvesting Activities oFinancing Activities

3 OPERATING ACTIVITIES  Transactions and events associated with: selling a product or providing a service the revenues and expenses reported on the Income Statement  Represent the company’s primary source of cash over the life of the business INFLOW EXAMPLES Cash receipts from the sale of goods or services Interest received on loans made to outside entities Dividends received on investments made in the stock of other companies

4 OPERATING ACTIVITIES  Transactions and events associated with: selling a product or providing a service the revenues and expenses reported on the Income Statement  Represent the company’s primary source of cash over the life of the business OUTFLOW EXAMPLES Payments for the acquisition of inventory Payments to employees and the government Payments for interest on loans Payments to other suppliers and for other expenses

5 CASH FLOWS FROM OPERATING ACTIVITIES  TWO METHODS: o DIRECT Revenues and expenses are adjusted –to reflect the amount of cash received or paid for each item o INDIRECT Net income is adjusted –for transactions that affect net income, but have no effect on cash flows

6 INVESTING ACTIVITIES  Transactions involving long-term assets, investments in debt and equity securities, and lending money and collecting the principalon the related loans INFLOW EXAMPLES  Proceeds from:  collection of principal on loans made  sale of property, plant and equipment; intangibles; and other productive assets  sale of investments in debt and equity securities  discounting notes receivable

7 INVESTING ACTIVITIES  Transactions involving long-term assets, investments in debt and equity securities, and lending money and collecting the principal on the related loans OUTFLOW EXAMPLES Loans made to other parties Payments to acquire property, plant, and equipment; intangibles; and other productive assets Payments to acquire investments in debt and equity securities

8 FINANCING ACTIVITIES  Transactions dealing with the exchange of cash between the company and its owners and creditors INFLOW EXAMPLES Proceeds from additional investments by the owners or the issuance of stock Proceeds from borrowing money through the signing of a mortgage, issuing a bond or other long- or short-term loans

9 FINANCING ACTIVITIES  Transactions dealing with the exchange of cash between the company and its owners and creditors OUTFLOW EXAMPLES Payments of dividends to stockholders or withdrawals by the owners Payments to purchase treasury stock Repayment of the principal on loans

10 STATEMENT OF CASH FLOWS EXAMPLE: Simplex Company has prepared its Income Statement, Statement of Retained Earnings and Balance Sheet for 20-3. Now it needs to prepare its Statement of Cash Flows.

11 Comparative Balance Sheet 160,000 $ 90,000 Simplex Company December 31, 20-3 and 20-2 Assets 20-320-2 Increase (Decrease) Current Assets: Cash Accounts Receivable Merchandise Inventory Total current assets Property, Plant and Equipment: Land Building Equipment Total property, plant and equip. Total assets $ 200,000 $(110,000) 190,000(30,000) 180,000200,000(20,000) $430,000$590,000(160,000) $ 40,000 0 140,000 0 100,000 0 $ 280,000$ 40,000$240,000 $ 710,000$ 630,000$ 80,000 The Statement of Cash Flows will explain how the cash account decreased by $110,000 in 20-3.

12 Schedule for the Calculation of Cash Generated from Operating Activities 600,000 $ 900,000 Simplex Company For Year Ended December 31, 20-3 Income StatementAdditionsDeductions Cash Flow Sales Cost of Goods Sold Gross Profit Operating Expenses Net Income 220,000 $ 300,000 $ 80,000 The revenues and expenses from the Income Statement are used in computing the “Cash Flow Generated from Operating Activities.”

13 Schedule for the Calculation of Cash Generated from Operating Activities 600,000 $ 900,000 Simplex Company For Year Ended December 31, 20-3 Income StatementAdditionsDeductions Cash Flow Sales Cost of Goods Sold Gross Profit Operating Expenses Net Income 220,000 $ 300,000 $ 80,000 We’ll start with the Sales… Sales (revenues) are recognized when earned, regardless of the amount of cash actually received. Sales must be converted to the amount of “Cash Received from Customers.”

14 CASH RECEIVED FROM CUSTOMERS ACCOUNTS RECEIVABLE To convert Sales into the “Cash Received from Customers” we need to examine the Accounts Receivable account. $190,000 Beg. balance

15 CASH RECEIVED FROM CUSTOMERS ACCOUNTS RECEIVABLE Sales increases the Accounts Receivable account. $190,000 Beg. balance Sales

16 CASH RECEIVED FROM CUSTOMERS ACCOUNTS RECEIVABLE Accounts Receivable is decreased by customers making payments. $190,000 Beg. balance ? Sales

17 CASH RECEIVED FROM CUSTOMERS ACCOUNTS RECEIVABLE $190,000 Beg. balance ? $160,000 End. balance Accounts Receivable decreased by $30,000 during 20-3. Sales

18 CASH RECEIVED FROM CUSTOMERS ACCOUNTS RECEIVABLE $190,000 Beg. balance ? $160,000 End. balance When Accounts Receivable decreases… Cash rec’d from customers > Sales Sales

19 CASH RECEIVED FROM CUSTOMERS ACCOUNTS RECEIVABLE $190,000 Beg. balance ? $160,000 End. balance Sales for the year were $900,000… $900,000

20 CASH RECEIVED FROM CUSTOMERS ACCOUNTS RECEIVABLE $190,000 Beg. balance $160,000 End. balance Cash Rec’d from Customers = Sales + Decrease in A/R $900,000 + $30,000 $900,000 $930,000

21 Schedule for the Calculation of Cash Generated from Operating Activities 600,000 $ 900,000 Simplex Company For Year Ended December 31, 20-3 Income StatementAdditionsDeductions Cash Flow Sales Cost of Goods Sold Gross Profit Operating Expenses Net Income 220,000 $ 300,000 $ 80,000 Cash Received from Customers. $ 930,000 $30,000

22 Schedule for the Calculation of Cash Generated from Operating Activities 600,000 $ 900,000 Simplex Company For Year Ended December 31, 20-3 Income StatementAdditionsDeductions Cash Flow Sales Cost of Goods Sold Gross Profit Operating Expenses Net Income 220,000 $ 300,000 $ 80,000 Cost of Goods Sold is adjusted next…. $ 930,000 $30,000

23 CASH PAID FOR MERCHANDISE MERCHANDISE INVENTORY We need to determine the amount of merchandise purchased during the year. $200,000 Beg. balance

24 CASH PAID FOR MERCHANDISE MERCHANDISE INVENTORY Purchases increase inventory. $200,000 Beg. balance ?

25 CASH PAID FOR MERCHANDISE MERCHANDISE INVENTORY Selling goods (merchandise) reduces inventory. $200,000 Beg. balance ? Cost of Goods Sold

26 CASH PAID FOR MERCHANDISE MERCHANDISE INVENTORY Inventory decreased by $20,000 during 20-3. $200,000 Beg. balance ? Cost of Goods Sold $180,000 End. balance

27 CASH PAID FOR MERCHANDISE MERCHANDISE INVENTORY When inventory decreases during the year….. Cost of Goods Sold > Purchases $200,000 Beg. balance ? Cost of Goods Sold $180,000 End. balance

28 CASH PAID FOR MERCHANDISE MERCHANDISE INVENTORY $200,000 Beg. balance ? $180,000 End. balance $600,000 Cost of Goods Sold for 20-3 is $600,000.

29 CASH PAID FOR MERCHANDISE MERCHANDISE INVENTORY $200,000 Beg. balance $180,000 End. balance $600,000 Purchases for 20-3 = Cost of Goods Sold - decrease in Merch. Inventory $600,000 - $20,000 $580,000

30 CASH PAID FOR MERCHANDISE MERCHANDISE INVENTORY $200,000 Beg. balance $180,000 End. balance $600,000 $580,000 Cost of merchandise purchased.

31 Schedule for the Calculation of Cash Generated from Operating Activities 600,000 $ 900,000 Simplex Company For Year Ended December 31, 20-3 Income StatementAdditionsDeductions Cash Flow Sales Cost of Goods Sold Gross Profit Operating Expenses Net Income 220,000 $ 300,000 $ 80,000 Decrease in Merchandise Inventory $ 930,000 $(20,000) $30,000

32 CASH PAID FOR MERCHANDISE ACCOUNTS PAYABLE $180,000 Beg. balance $120,000 End. balance Now that we know Simplex’ purchases, we need to determine how much cash was paid for these goods.

33 CASH PAID FOR MERCHANDISE ACCOUNTS PAYABLE $180,000 Beg. balance $120,000 End. balance Purchases increase Accounts Payable and cash payments on these purchases decrease Accts. Payable. $580,000 ?

34 CASH PAID FOR MERCHANDISE ACCOUNTS PAYABLE $180,000 Beg. balance $120,000 End. balance Accounts Payable decrease by $60,000 during 20-3, Purchases < Cash paid $580,000 ?

35 CASH PAID FOR MERCHANDISE ACCOUNTS PAYABLE $180,000 Beg. balance $120,000 End balance Cash paid for merchandise = Purchases + decrease in Accounts Payable $580,000 + $60,000 $580,000 $640,000

36 Schedule for the Calculation of Cash Generated from Operating Activities 600,000 $ 900,000 Simplex Company For Year Ended December 31, 20-3 Income StatementAdditionsDeductions Cash Flow Sales Cost of Goods Sold Gross Profit Operating Expenses Net Income 220,000 $ 300,000 $ 80,000 Decrease in Accounts Payable $ 930,000 $(20,000)$ 640,000 $30,000 $60,000

37 Schedule for the Calculation of Cash Generated from Operating Activities 600,000 $ 900,000 Simplex Company For Year Ended December 31, 20-3 Income StatementAdditionsDeductions Cash Flow Sales Cost of Goods Sold Gross Profit Operating Expenses Net Income 220,000 $ 300,000 $ 80,000 Operating Expenses are generally adjusted for prepaid expenses, accrued liabilities, and depreciation. $ 930,000 $(20,000)$ 640,000 $30,000 $60,000

38 Schedule for the Calculation of Cash Generated from Operating Activities 600,000 $ 900,000 Simplex Company For Year Ended December 31, 20-3 Income StatementAdditionsDeductions Cash Flow Sales Cost of Goods Sold Gross Profit Operating Expenses Net Income 220,000 $ 300,000 $ 80,000 Simplex does not have any of these items, so there is no need to adjust operating expenses. $ 930,000 $(20,000)$ 640,000 220,000 $30,000 $60,000

39 Cash flows from operating activities: Cash received from customers $(640,000) $930,000 Simplex Company Statement of Cash Flows For Year ended December 31, 20-3 Cash paid for merchandise Cash paid for operating expenses(220,000) Total cash disbursed for operating act. (860,000) $ 70,000Net cash provided by operating activities Cash flows from investing activities: Now that the operating section is completed, we turn our attention to the investing section.

40 Comparative Balance Sheet 160,000 $ 90,000 Simplex Company December 31, 20-3 and 20-2 Assets 20-320-2 Increase (Decrease) Current Assets: Cash Accounts Receivable Merchandise Inventory Total current assets Property, Plant and Equipment: Land Building Equipment Total property, plant and equip. Total assets $ 200,000 $(110,000) 190,000(30,000) 180,000200,000(20,000) $430,000 $590,000(160,000) $ 40,000 0 140,000 0 100,000 0 $ 280,000$ 40,000$240,000 $ 710,000$ 630,000$ 80,000 Investing activities involve the purchase and sale of Plant Assets.

41 INVESTING ACTIVITIES BUILDING $ 0 Beg. balance $140,000 End balance Beg. balance $ 0 $100,000 End balance EQUIPMENT Simplex Company informs us the only activity in the building and equipment accounts in 20-3 was the purchase of a building and equipment for cash, just before year end.

42 Cash flows from operating activities: Cash received from customers $(640,000) $930,000 Simplex Company Statement of Cash Flows For Year ended December 31, 20-3 Cash paid for merchandise Cash paid for operating expenses(220,000) Total cash disbursed for operating act. (860,000) $ 70,000Net cash provided by operating activities Cash flows from investing activities: On to the Financing section... Purchased building$(140,000) Purchased equipment(100,000) (240,000)Net cash used by investing activities Cash flows from financing activities:

43 Comparative Balance Sheet 160,000 $ 90,000 Simplex Company December 31, 20-3 and 20-2 Assets 20-320-2 Increase (Decrease) Current Assets: Cash Accounts Receivable Merchandise Inventory Total current assets Property, Plant and Equipment: Land Building Equipment Total property, plant and equip. Total assets $ 200,000 $(110,000) 190,000(30,000) 180,000200,000(20,000) $430,000$590,000(160,000) $ 40,000 0 140,000 0 100,000 0 $ 280,000$ 40,000$240,000 $ 710,000$ 630,000$ 80,000 Financing activities involve exchanges of cash between the company and its stockholders and creditors.

44 120,000 $ 60,000 Liabilities Current liabilities: Notes Payable Accounts Payable Total liabilities Stockholders’ Equity Common Stock $5 par, 100,000 shares auth.; Issued 58,000 Paid-in-capital in excess of par- $ 50,000$ 10,000 50,000 (60,000) $180,000 100,000 (50,000)$230,000 $250,000$290,000 40,000 130,00030,000 110,000 130,000$ 530,000 $ 630,000$ 710,000 $ 400,000 $ 80,000 180,000 in 20-3, 50,000 in 20-2 common stock Retained Earnings Total liab. & stockholders’ equity 60,000 Total stockholders’ equity Let’s begin by analyzing the cash related activities in the Notes Payable account.

45 FINANCING ACTIVITIES NOTES PAYABLE $ 50,000 Beg. balance $ 60,000 $10,000 increase in 20-3 from issuing a note. $10,000

46 Cash flows from operating activities: Cash received from customers $(640,000) $930,000 Simplex Company Statement of Cash Flows For Year ended December 31, 20-3 Cash paid for merchandise Cash paid for operating expenses(220,000) Total cash disbursed for operating act. (860,000) $ 70,000Net cash provided by operating activities Cash flows from investing activities: Purchased building$(140,000) Purchased equipment(100,000) (240,000)Net cash used by investing activities Cash flows from financing activities: Issued Note Payable$ 10,000

47 120,000 $ 60,000 Liabilities Current liabilities: Notes Payable Accounts Payable Total liabilities Stockholders’ Equity Common Stock $5 par, 100,000 shares auth.; Issued 58,000 Paid-in-capital in excess of par- $ 50,000$ 10,000 50,000 (60,000) $180,000 100,000 (50,000)$230,000 $250,000$290,000 40,000 130,00030,000 110,000 130,000$ 530,000 $ 630,000$ 710,000 $ 400,000 $ 80,000 180,000 in 20-3, 50,000 in 20-2 common stock Retained Earnings Total liab. & stockholders’ equity 60,000 Total stockholders’ equity We will move now to the Capital Stock accounts.

48 INVESTING ACTIVITIES COMMON STOCK $250,000 Beg. balance $290,000 End balance Beg. balance $ 100,000 $130,000 End balance PAID-IN CAPITAL IN EXCESS OF PAR- COMMON STOCK The only types of transactions that increase or decrease the Capital Stock accounts are issuing and retiring stock.

49 INVESTING ACTIVITIES COMMON STOCK $250,000 Beg. balance $290,000 End balance Beg. balance $ 100,000 $130,000 End balance PAID-IN CAPITAL IN EXCESS OF PAR- COMMON STOCK Since Common Stock increased during 20-3, stock with par value of $40,000 was issued. $40,000

50 INVESTING ACTIVITIES COMMON STOCK $250,000 Beg. balance $290,000 End balance Beg. balance $ 100,000 $130,000 End balance PAID-IN CAPITAL IN EXCESS OF PAR- COMMON STOCK Since Paid-In Capital increased during 20-3, stock was issued for a price $30,000 above the par value. $40,000$30,000

51 Cash flows from operating activities: Cash received from customers $(640,000) $930,000 Simplex Company Statement of Cash Flows For Year ended December 31, 20-3 Cash paid for merchandise Cash paid for operating expenses(220,000) Total cash disbursed for operating act. (860,000) $ 70,000Net cash provided by operating activities Cash flows from investing activities: Purchased building$(140,000) Purchased equipment(100,000) (240,000)Net cash used by investing activities Cash flows from financing activities: Issued Note Payable$ 10,000 Issued Common Stock 70,000

52 120,000 $ 60,000 Liabilities Current liabilities: Notes Payable Accounts Payable Total liabilities Stockholders’ Equity Common Stock $5 par, 100,000 shares auth.; Issued 58,000 Paid-in-capital in excess of par- $ 50,000$ 10,000 50,000 (60,000) $180,000 100,000 (50,000)$230,000 $250,000$290,000 40,000 130,00030,000 110,000 130,000$ 530,000 $ 630,000$ 710,000 $ 400,000 $ 80,000 180,000 in 20-3, 50,000 in 20-2 common stock Retained Earnings Total liab. & stockholders’ equity 60,000 Total stockholders’ equity The final account to be analyzed is Retained Earnings.

53 Retained Earnings, January 1, 20-3 Net Income$ 80,000 $ 50,000 Simplex Company Statement of Retained Earnings For Year ended December 31, 20-3 Less dividends Net increase in retained earnings 20,000 Retained Earnings, December 31, 20-3 60,000 $110,000 The Statement of Retained Earnings provides us with a summary of all the activity in the account.

54 Retained Earnings, January 1, 20-3 Net Income$ 80,000 $ 50,000 Simplex Company Statement of Retained Earnings For Year ended December 31, 20-3 Less dividends Net increase in retained earnings 20,000 Retained Earnings, December 31, 20-3 60,000 $110,000 The Net Income has already been analyzed for cash activities…. But dividends involve the payment of cash and therefore must be recorded on the Statement of Cash Flows.

55 Cash flows from financing activities: Paid cash dividends 60,000Net cash provided by financing activities Issued Note Payable$ 10,000 Issued Common Stock 70,000 (20,000) Net increase in cash$(110,000) Operating Investing Financing $ 70,000 (240,000) 60,000 $(110,000)

56 Cash flows from financing activities: Paid cash dividends 60,000Net cash provided by financing activities Issued Note Payable$ 10,000 Issued Common Stock 70,000 (70,000) Net increase in cash Cash balance, January 1, 20-3 200,000 Cash balance, December 31, 20-3 What about more complex companies? $(110,000) $ 90,000

57 Comparative Balance Sheet 1,800 $ 22,980 Multiplex Company December 31, 20-2 and 20-1 Assets 20-220-1 Increase (Decrease) Current Assets: Cash Government notes Accrued interest receivable Total current assets Supplies and prepayments Property, plant and equipment Store equipment Less accumulated depreciation $ 20,000$ 2,980 3,200(1,400) 100300(200) 4,000 2,750 (2,930) $153,665$145,260 9,200$ 48,000 (14,000)4,000 Accounts Receivable (net)60,21551,510 8,705 Merchandise inventory64,57067,500 1,250 8,405 $ 38,800 (18,000) Delivery equipment$ 45,000$ 32,00013,000 Less accumulated depreciation (12,500)( 8,000)4,500 Step #1 Compute the change in cash and cash equivalents.

58 CASH AND CASH EQUIVALENTS  To qualify as a cash equivalent: an investment must be readily convertible to a known amount of cash  These are considered the same as cash when preparing the statement of cash flows 20-1 Cash Gov’t Notes $20,000 3,200 $23,200 20-2 $22,980 1,800 $24,780 $1,580 increase

59 Income Statement 270,100 $ 460,000 Multiplex Company For Year Ended December 31, 20-2 Income StatementAdditionsDeductions Cash Flow Net Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income 144,750 $ 190,000 $ 45,250 Step #2 Prepare a schedule to calculate cash from operating activities. Interest revenue155 Interest expense650 Net Income$ 44,755

60 Income Statement 270,100 $ 460,000 Multiplex Company For Year Ended December 31, 20-2 Income StatementAdditionsDeductions Cash Flow Net Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income 144,750 $ 190,000 $ 45,250 Increase in Accounts Receivable $(8,705)$ 451,395 Interest revenue155 Interest expense650 Net Income$ 44,755

61 Income Statement 270,100 $ 460,000 Multiplex Company For Year Ended December 31, 20-2 Income StatementAdditionsDeductions Cash Flow Net Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income 144,750 $ 190,000 $ 45,250 Decrease in Inventory…. purchased less than what was sold $(8,705)$ 451,395 Interest revenue155 Interest expense650 Net Income$ 44,755 (2,930)

62 Income Statement 270,100 $ 460,000 Multiplex Company For Year Ended December 31, 20-2 Income StatementAdditionsDeductions Cash Flow Net Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income 144,750 $ 190,000 $ 45,250 Decrease in Accounts Payable... paid for more than what was purchased $(8,705)$ 451,395 Interest revenue155 Interest expense650 Net Income$ 44,755 (2,930) $11,400

63 Income Statement 270,100 $ 460,000 Multiplex Company For Year Ended December 31, 20-2 Income StatementAdditionsDeductions Cash Flow Net Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income 144,750 $ 190,000 $ 45,250 Operating expenses involve many accounts. $(8,705)$ 451,395 Interest revenue155 Interest expense650 Net Income$ 44,755 (2,930)$11,400 278,570 $ 172,825

64 OPERATING EXPENSES SUPPLIES AND PREPAYMENTS $2,750 Beg. Balance $4,000 End Balance Supplies purchased and prepayments made

65 OPERATING EXPENSES SUPPLIES AND PREPAYMENTS $2,750 Beg. Balance $4,000 End Balance Supplies and prepayments consumed (Operating Expenses)

66 OPERATING EXPENSES SUPPLIES AND PREPAYMENTS $2,750 Beg. Balance $4,000 End Balance $1,250 Increase indicates more were purchased (paid) than were consumed (expensed).

67 Income Statement 270,100 $ 460,000 Multiplex Company For Year Ended December 31, 20-2 Income StatementAdditionsDeductions Cash Flow Net Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income 144,750 $ 190,000 $ 45,250 $(8,705)$ 451,395 Interest revenue155 Interest expense650 Net Income$ 44,755 (2,930)$11,400 1,250 278,570 $ 172,825

68 OPERATING EXPENSES Multiplex informs us that Depreciation Expense of $10,400 is included in the Operating Expenses reported on the Income Statement. Depreciation does not use or provide cash… therefore it should be subtracted from Operating Expenses on our schedule.

69 Income Statement 270,100 $ 460,000 Multiplex Company For Year Ended December 31, 20-2 Income StatementAdditionsDeductions Cash Flow Net Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income 144,750 $ 190,000 $ 45,250 $(8,705)$ 451,395 Interest revenue155 Interest expense650 Net Income$ 44,755 (2,930) $11,400 1,250 (10,400) 278,570 $ 172,825

70 OPERATING EXPENSES Beg. Balance End Balance $1,520 $ 950 ACCRUED AND WITHHELD PAYROLL TAXES The $570 decrease indicates more was paid than expensed.

71 Income Statement 270,100 $ 460,000 Multiplex Company For Year Ended December 31, 20-2 Income StatementAdditionsDeductions Cash Flow Net Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income 144,750 $ 190,000 $ 45,250 $(8,705)$ 451,395 Interest revenue155 Interest expense650 Net Income$ 44,755 (2,930)$11,400 1,250 (10,400) 570 278,570 136,170 $ 172,825 $ 36,655 Let’s analyze the Interest Revenue account.

72 INTEREST REVENUE Beg. Balance End Balance $300 $ 100 INTEREST RECEIVABLE The $200 decrease indicates more was received than earned this period.

73 Income Statement 270,100 $ 460,000 Multiplex Company For Year Ended December 31, 20-2 Income StatementAdditionsDeductions Cash Flow Net Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income 144,750 $ 190,000 $ 45,250 $(8,705)$ 451,395 Interest revenue155 Interest expense650 Net Income$ 44,755 (2,930) $11,400 1,250 (10,400) 570 278,570 136,170 $ 172,825 $ 36,655 200 355 Interest Expense is the final account to be analyzed.

74 INTEREST EXPENSE Beg. Balance End Balance $ 80 $ 100 INTEREST PAYABLE The increase indicates all but $20 of this year’s Interest Expense was paid.

75 Income Statement 270,100 $ 460,000 Multiplex Company For Year Ended December 31, 20-2 Income StatementAdditionsDeductions Cash Flow Net Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income 144,750 $ 190,000 $ 45,250 $(8,705)$ 451,395 Interest revenue155 Interest expense650 Net Income$ 44,755 (2,930)$11,400 1,250 (10,400) 570 278,570 136,170 $ 172,825 $ 36,655 200 355 (20) 630 $ 36,380

76 Cash flows from operating activities: Cash received from customers 355 $451,395 Multiplex Corporation Statement of Cash Flows For Year ended December 31, 20-2 Cash paid for merchandise Cash provided by operating activities Cash paid for merchandise$(278,570) $451,750 Cash paid for operating expenses Interest paid Total cash disbursed for oper. activities(415,370) (136,170) (630) Net cash provided bv operating activities$ 36,380 Cash flows from investing activities:

77 INVESTING ACTIVITIES Bal. $ 34,000 $ 38,000 OFFICE EQUIPMENT $ 48,000 $ 38,800 Bal. STORE EQUIPMENT Multiplex informs us the only equipment transactions were the purchases of new equipment for cash.

78 INVESTING ACTIVITIES Bal. $ 34,000 $ 38,000 OFFICE EQUIPMENT $ 48,000 $ 38,800 Bal. STORE EQUIPMENT Cash paid for equipment 9,2004,000

79 Cash flows from operating activities: Cash received from customers 355 $451,395 Multiplex Corporation Statement of Cash Flows For Year ended December 31, 20-2 Cash paid for merchandise Cash provided by operating activities Cash paid for merchandise$(278,570) $451,750 Cash paid for operating expenses Interest paid Total cash disbursed for oper. activities(415,370) (136,170) (630) Net cash provided bv operating activities$ 36,380 Cash flows from investing activities: Purchased store equipment Purchased office equipment $ (9,200) (4,000)

80 INVESTING ACTIVITIES Beg. Balance End Balance $ 32,000 $ 45,000 DELIVERY EQUIPMENT Purchase of new equipment in exchange for a note. 13,000

81 INVESTING ACTIVITIES Beg. Balance End Balance $ 32,000 $ 45,000 DELIVERY EQUIPMENT Since this transaction does not involve cash, it will not be shown on the Statement of Cash Flows. 13,000

82 Cash flows from operating activities: Cash received from customers 355 $451,395 Multiplex Corporation Statement of Cash Flows For Year ended December 31, 20-2 Cash paid for merchandise Cash provided by operating activities Cash paid for merchandise$(278,570) $451,750 Cash paid for operating expenses Interest paid Total cash disbursed for oper. activities(415,370) (136,170) (630) Net cash provided bv operating activities$ 36,380 Cash flows from investing activities: Purchased store equipment Purchased office equipment $ (9,200) (4,000) (13,200)Net cash used bv investing activities Cash flows from financing activities:

83 FINANCING ACTIVITIES Bal. $ 39,000 $ 40,000 PAID-IN CAPITAL $ 100,000 $ 98,000 COMMON STOCK Multiplex issued additional shares of stock for $3,000. 2,0001,000 Bal.

84 Cash flows from operating activities: Cash received from customers 355 $451,395 Multiplex Corporation Statement of Cash Flows For Year ended December 31, 20-2 Cash paid for merchandise Cash provided by operating activities Cash paid for merchandise$(278,570) $451,750 Cash paid for operating expenses Interest paid Total cash disbursed for oper. activities(415,370) (136,170) (630) Net cash provided bv operating activities$ 36,380 Cash flows from investing activities: Purchased store equipment Purchased office equipment $ (9,200) (4,000) (13,200)Net cash used bv investing activities Cash flows from financing activities: Issued common stock$ 3,000 Multiplex informs us that cash dividends of $22,800 were paid in 20-2.

85 Cash flows from financing activities: Issued Common Stock$ 3,000 Paid cash dividends (22,800)

86 INVESTING ACTIVITIES Beg. Balance End. Balance $ 11,800 $ 10,000 NOTES PAYABLE Cash was paid to reduce the Notes Payable balance. 1,800

87 Cash flows from financing activities: Issued Common Stock$ 3,000 Paid cash dividends (22,800) Retired note payable (1,800) Net cash used bv financing activities (21,600) $ 1,580Net increase in cash and cash equivalents Cash and cash equivalents, January 1, 20-2 Cash and cash equivalents, December 31, 20-2 23,200 $24,780 Schedule of noncash investing and financing activities: Non-cash investing and financing activities are activities that involve no cash flow, but represent a significant change in the company’s financial position.

88 Cash flows from financing activities: Issued Common Stock$ 3,000 Paid cash dividends (22,800) Retired note payable (1,800) Net cash used bv financing activities (21,600) $ 1,580Net increase in cash and cash equivalents Cash and cash equivalents, January 1, 20-2 Cash and cash equivalents, December 31, 20-2 23,200 $24,780 Schedule of noncash investing and financing activities: Multiplex had one such transaction… The issuance of a note payable to purchase new Delivery Equipment. Acquired delivery equip. by issuing a note

89 INTERPRETING THE STATEMENT  Most important indicator of financial health of a business is “ Net cash used or provided by operating activities” oPositive cash flows are needed to purchase property, plant and equipment. This could be done through borrowing but loans must be repaid. This could be done through issuance of stock but dividends have to be paid. oChronic inability to generate positive cash flows is a sure sign of financial instability.


Download ppt "CHAPTER TWENTY-FIVE STATEMENT OF CASH FLOWS.  Purpose: To provide information about how cash was generated and used during the period  Divides cash."

Similar presentations


Ads by Google