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?

2. Three different activities: Operating, Content and Format The Statement of Cash Flows LO 7 Identify the content of the statement of cash flows. Investing,Financing Illustration 5-24

3. Statement of Cash Flows Operating Investing Financing

4. 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.

5. Preparation – Indirect Approach The Statement of Cash Flows LO 8 Prepare a statement of cash flows. Noncash credit to revenues. Noncash charge to expenses.

6. 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

7. 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

8. Cash flows from Operating Activities: $$ Cash flows from Investing Activities: $$ Cash flows from Financing Activities: $$ Net increase in cash $$ Cash at beginning of year $$ Cash at end of year $$ Basic Format for the Statement of Cash Flows Involve the purchase and sale of products or services Involve the acquisition and sale of long-term assets Involve the issuance and payment of long-term liabilities and stock

9. Statement of Cash Flows Operating Investing Financing

10. 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 a. Sale of equipment at book value b. Sale of merchandise on credit b. Sale of merchandise on credit c. Declaration of a cash dividend c. Declaration of a cash dividend d. Issuance of bonds payable at a discount receivable. d. Issuance of bonds payable at a discount receivable. The Statement of Cash Flows LO 8 Prepare a statement of cash flows.

11. 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

12. 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

13. 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

14. 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

15. 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