c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Student Version o Repetition is an important component, a key part of learning. In memory, the more times patterns of thought are repeated, the more likely you will be able to recall information. o These PowerPoint slides have been modified from the lecture decks by making them fill-in-the-blank. Why? So that you get an opportunity to repeat a visual cue (from the lecture or the book) via completing text here. o In addition, most text book exhibits have been removed as they are available in your text directly.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Statement of Cash Flows Chapter 13

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe the cash flow activities reported in the statement of cash flows. 1

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Reporting Cash Flows o The statement of ________ ________ reports a firm’s major cash ________ and ________ for a period. It provides useful information about a company’s ability to do the following:  Generate ________ from ________  ________ and ________ its operating ________  Meet its ________ ________  Pay ________

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Reporting Cash Flows o The ________ of ________ ________ reports cash flows from three types of activities:  Cash flows from ________ ________ are cash flows from transactions that affect ________ ________.  Cash flows from ________ ________ are cash flows from transactions that affect investments in the ________ ________ of the company.  Cash flows from ________ ________ are cash flows from transactions that affect the ________ and ________ of the company.

R EPORTING C ASH F LOWS

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Cash Flows from ________ ________ o The direct method reports ________ cash inflows (________) and cash ________ (payments) as follows: The primary ________ cash inflow is cash ________ from ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Cash Flows from ________ ________ o The primary operating cash outflows are ________ payments for ________, ________ ________, ________, and ________ ________ payments.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Reporting Cash Flows o The indirect method reports the operating cash flows by beginning with ________ ________ and adjusting it for ________ and ________ that do not involve the ________ or ________ of cash as follows:

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Reporting Cash Flows o The primary advantage of the indirect method is that it ________ the differences between ________ ________ and ________ ________ flows from ________. Also, the ________ method is ________ costly to use than the ________ method.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Reporting Cash Flows o Whether the ________ or ________ method is used, the amount of ________ ________ ________ from operating activities will be the same. This is illustrated in Exhibit 2.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Cash Flows from ________ Activities o Cash inflows from investing ________ normally arise from ________ ________ ________, ________, and ________ ________. o Cash outflows from ________ activities normally include ________ to acquire ________ ________, ________, and ________ ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Cash Flows from ________ Activities o Cash ________ from financing activities normally arise from issuing ________ - ________ ________ or ________ ________. o Cash outflows from ________ activities normally include paying ________ ________, ________ ________ - ________ ________, and acquiring ________ ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. ________ Investing and Financing Activities o Noncash investing and financing activities are transactions that _____ not ________ affect ________. The effect of such transactions is recorded in a ________ schedule that appears at the ________ of the ________ of ________ ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. No Cash Flow Per ________ o Cash flow per share should ________ be reported on a company’s ________ ________ for the following reasons:  Users may misinterpret _____ ________ per ________ as the per- ________ amount ________ for ________.  Users may ________ cash flow per ________ as equivalent to ________ per ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Prepare a statement of cash flows, using the indirect method. 2

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. The ________ Method o The indirect method of reporting cash flows from ________ ________ uses the logic that a change in any balance sheet account (including ________) can be analyzed in ________ of ________ in ________ balance sheet accounts. o Any change in the cash account can be determined by analyzing ________ in ________, ________ ________, and noncash ________ accounts.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Adjustments to Net Income Cash flows from operating activities: Net income $ ________ Adjustments to reconcile net income to net cash flow from operating activities: Rundell Inc. This phrase beginning with “ ________ …” is added to indicate that ________ ________ ________ ________ is being ________ to arrive at cash flows from ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Step 1 o Expenses that do not affect cash are ________. Such ________ ________ net income, but do not involve ________ payments and, thus, are ________ to net income. Examples include ________ of fixed assets and ________ of ________ ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Step 2 o ________ and ________ on disposal of assets are ________ or ________. The ________ (sale) of ________ is an ________ activity, rather than an ________ activity. Losses on ________ of assets are ________ ________ to net income. ________ on disposal of ________ are ________ from ________ ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Step 3 o Changes in current ________ ________ and ________ are ________ or ________ as follows:  Increases in noncash current operating assets are ________.  Decreases in ________ current operating assets are ________.  Increases in current operating liabilities are ________.  Decreases in current operating liabilities are ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. (continued) Adjustments to Net Income o Accounts receivable (net): The $9,000 increase is ________ from net income. This is because the $9,000 ________ in ________ ________ indicates that sales on account were $9,000 ________ than the cash ________ from customers. Thus, sales (and ________ ________) includes $9,000 that was not received in ________ during the year.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. (continued) Adjustments to Net Income o Inventories: The $8,000 ________ is ________ to net income. This is because the $8,000 ________ in inventories indicates that the cost of ________ sold ________ the cost of ________ ________ during the year by $8,000. o Accounts Payable (merchandise creditors): The $3,200 ________ is ________ from net income. This is because a ________ in ________ ________ indicates that the ________ payments to ________ ________ exceed the ________ purchased on ________ by $3,200.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Adjustments to Net Income o Accrued expenses payable (operating expenses): The $2,200 ________ is ________ to net income. This is because an ________ in accrued expenses indicates that ________ expenses reported on the ________ statement exceed the ________ payments for ________ expenses by $2,200. o Income Taxes Payable: The $500 decrease is ________ from ________ ________. This is because a ________ in income taxes payable indicates that ________ paid ________ the amount of ________ incurred during the year by $500.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Dividends o Cash dividends of $ ________ were ________ during o However, as can be seen from the ________ ________ account, only $ ________ was paid.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Common Stock o Rundell Inc.’s ________ ________ account ________ by $8,000 during o The ________ - ________ capital in ________ of ________ —________ stock account ________ by $40,000 during the year.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Bonds Payable ________ ________ decreased by $50,000 during 2014, due to ________ the bonds. A check of Rundell’s income statement shows that there was no ________ or ________ on the retirement.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Building o The ________ account ________ by $60,000.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Land o The $45,000 ________ in the ________ account was from two transactions.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Land o Earlier, as part of Step 2 in preparing the ________ ________ section, the $ ________ ________ was ________ from net income.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Land o The October 12 transaction is the ________ of land for ________ of $ ________. This transaction is reported as an outflow of cash in the ________ ________ section.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Preparing the Statement of Cash Flows o The completed statement of cash flows for Rundell Inc. using the indirect method is shown in Exhibit 6. The increase in cash shown on the statement ($ ________ ) should ________ the ________ in cash in Rundell Inc.’s ________ account.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Prepare a statement of cash flows, using the direct method. 3

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. The Direct Method o The ________ method reports cash flows from ________ ________ as follows:

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. The ________ Method o The final amount reported in the Cash Flows from ________ ________ section will be the ________ whether the ________ or ________ method is used. The methods differ in how the data are ________, ________, and ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. The ________ Method o Under the direct method, the income statement is adjusted to cash flows from operating activities as follows:

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. The Direct Method o ________ expense is ________ ________ or ________ as part of cash flows from ________ activities. This is because depreciation ________ does ________ involve a ________ ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. The Direct Method o ________ and ________ are also not ________, because the cash flow from ________ activities is determined ________, rather than by reconciling ________ ________. Proceeds from the sale of land, which include ________ gains or losses, are reported as an ________ _______.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. ________ Received from Customers o Rundell Inc. reports sales of $1,180,000 for To determine the cash ________ ________ ________, sales are ________ by any ________ or ________ in accounts receivable.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Cash Payments for ________ o Rundell Inc. reports cost of ________ sold of $790,000. To determine the cash ________ ________ ________, the $790,000 is adjusted for any ________ or ________ in inventories and ________ ________ (assuming the accounts payable are owed to ________ ________).

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Cash Payments for Operating Expenses o Rundell Inc. reports total ________ ________ of $203,000, which includes ________ expense of $7,000. To determine cash ________ ________ ________ ________, the other ________ expenses (excluding ________ ) of $196,000 are adjusted for any ________ or ________ in ________ expenses ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Interest ________ o Rundell Inc. reports ________ expense of $8,000. To determine the cash payments for ________, the $8,000 is adjusted for any ________ or ________ in ________ ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Cash Payments for ________ ________ o Rundell Inc. reports income tax expense of $83,000. To determine the ________ ________ ________ ________ ________, the $83,000 is adjusted for any ________ or ________ in income ________ ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe and illustrate the use of free cash flow in evaluating a company’s cash flow. 4

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Free Cash Flow o ________ ________ ________ measures the ________ cash flow available for a company to use ________ ________ the ________, ________, and ________ (PP&E) necessary to ________ current ________ ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. ________ Cash Flow Cash flow from ________ activities Less: Investments in ________ assets to ________ current ________ Free ________ ________ Free ________ ________ o ________ free cash flow is considered favorable. A company that has free cash flow is able to fund ________ ________, retire ________, pay ________, and enjoy ________ ________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Appendix Spreadsheet (Work Sheet) for Statement of Cash Flows ­ The Indirect Method Spreadsheet (Work Sheet) for Statement of Cash Flows ­ The Indirect Method

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Statement of Cash Flows The End