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2. The Statement of Cash Flows Section 1: Sources and Uses of Cash Chapter 24 Section Objectives 24-1 Distinguish between operating, investing, and financing activities.

3. Statement of Cash Flows Reviewed by creditors to determine how the firm will pay principal and interest on debts. Reviewed by investors to determine if the corporation will have the cash to pay dividends. Reviewed by management for information about cash to pay employees, suppliers, and other obligations. 24-3

4. Sources and Uses of Cash Cash inflows and outflows are classified under three headings: Operating Activities Investing Activities Financing Activities Distinguish between operating, investing, and financing activities. Objective 24-1 24-4

5. Sources of CashUses of Cash Operating Activities Sale of merchandise Sale of services Interest income Dividend income Miscellaneous income Pay for merchandise Pay taxes Pay salaries and wages Pay interest expense Pay for other expenses 24-5

6. Sources of CashUses of Cash Investing Activities Sale of land, buildings, or equipment. Principal payments collected on receivable for long-term assets. Sale of investment in bonds or other securities. Pay for purchase of land, buildings, or equipment. Pay for the purchase of investments in bonds or other securities. 24-6

7. Sources of CashUses of Cash Financing Activities Issuance of common stock. Issuance of preferred stock. Issuance of bonds payable. Borrowing through signing a note payable. Resale of treasury stock. Pay cash dividends on common stock. Pay cash dividends on preferred stock. Repay bond indebtedness. Repay notes payable or other borrowing. Purchase treasury stock. 24-7

8. The Statement of Cash Flows Section 2: Cash Flows from Operating Activities Chapter 24 Section Objectives 24-2 Compute cash flows from operating activities. 24-8

9. To prepare the statement of cash flows, you need four items. Income statement Schedule of operating expenses Statement of retained earnings Comparative balance sheet Statement of Cash Flows 24-9

10. The schedule of operating expenses is a schedule that supplements the income statement. ANSWER: It shows the selling expenses, and general and administrative expenses in greater detail. QUESTION: What is the schedule of operating expenses? Compute cash flows from operating activities. Objective 24-2 24-10

11. Reconciles the beginning and ending cash balances. Ties together: income statement, changes in the noncash items on the balance sheet, changes in the noncash items on the statement of retained earnings. Can be prepared in two different ways: direct method. indirect method. Statement of Cash Flows This chapter illustrates the indirect method. 24-11

12. Cash Flows from Operating Activities Net income (or net loss) + or – Adjustments for noncash items on income statement +Decreases in current assets – Increases in current assets +Increases in current liabilities – Decreases in current liabilities Indirect Method = Net cash provided by operating activities 24-12

13. The Statement of Cash Flows Section 3: Cash Flows from Investing and Financing Activities Chapter 24 Section Objectives 24-3 Compute cash flows from investing activities. 24-4 Compute cash flows from financing activities. 24-5 Prepare a statement of cash flows. 24-13

14. Investing activities involve the acquisition or disposal of assets that are not consumed in routine operations within one year. Cash Flows from Investing Activities Compute cash flows from investing activities. Objective 24-3 24-14

15. Cash payments for purchases of property, plant, and equipment. Cash payments for purchases of stocks and bonds of other corporations. Cash Outflows from Investing Activities 24-15

16. Cash Inflows from Investing Activities Sale of property, plant, and equipment. Sale of investments in securities of other corporations. Principal received on mortgages or notes held in connection with the sale of plant and equipment. 24-16

17. Equity transactions. Debt transactions. Cash Flows from Financing Activities Compute cash flows from financing activities. Objective 24-4 24-17

18. Original issue of capital stock. Resale of treasury stock. Issue of bonds and notes payable. Cash Inflows from Financing Activities 24-18

19. Purchase of treasury stock. Retirement of preferred stock. Payment of cash dividends. Repayment of debt obligations: Bonds payable. Notes payable. Mortgages. Cash Outflows from Financing Activities Interest expense is an outflow from operating activities (not financing activities.) 24-19

20. Cash flows from three types of business activities are combined to arrive at the net change in cash and cash equivalents: Operating Investing Financing The net change is combined with the beginning balance of cash and cash equivalents to reconcile to the ending balance of cash and cash equivalents. Prepare a statement of cash flows. Objective 24-5 24-20

21. Agrees with amount reported on balance sheet 24-21

22. If the indirect method is used, the notes accompanying the statement must include: Interest paid Income tax paid Disclosures Required in the Statement of Cash Flows Operating Activities Investing and Financing Activities Noncash activities are disclosed on the statement. Examples include: Issuing bonds payable for land Converting bonds payable into common stock 24-22

23. Thank You for using College Accounting, 14th Edition Price Haddock Farina 24-23