Purpose of the Statement of Cash Flows  Explains changes in cash over a period of time  Summarizes cash inflows and outflows from: Operating Activities.

Slides:



Advertisements
Similar presentations
STATEMENT OF CASH FLOWS
Advertisements

Chapter 12 The Statement of Cash Flows
© 2007 The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin Chapter 21 Statement of Cash Flows Revisited.
The Statement of Cash Flows
© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irwin Reporting the Statement of Cash Flows(refer to HOU’s) Chapter 16.
The Statement of Cash Flows
© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 16-1 Reporting the Statement of Cash Flows Chapter 16.
STATEMENT OF CASH FLOWS
Chapter 17: Cash Flow Statement
Copyright © 2007 Prentice-Hall. All rights reserved 1 The Statement of Cash Flows Chapter 16.
17-1 Learning Objectives After studying this chapter, you should be able to: [1] Indicate the usefulness of the statement of cash flows. [2] Distinguish.
Statement of Cash Flows Chapter Understanding the purpose of a statement of cash flows. Learning Objective 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.
Reporting and Analyzing Cash Flows Chapter 17. Purposes of the Statement of Cash Flows Designed to fulfill the following: – predict future cash flows.
The Statement of Cash Flows
©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber The Statement of Cash Flows Chapter 17.
Chapter 18 The Cash Flow Statement
C H A P T E R 13 Statement of Cash Flows. Learning Objective 1 Understand the purpose of a statement of cash flows.
McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Chapter Thirteen: Statement of Cash Flows.
©The McGraw-Hill Companies, Inc. 2006McGraw-Hill/Irwin Chapter Twelve Statement of Cash Flows.
13–1 Chapter 13 The Statement of Cash Flows. 13–2 Copyright © Cengage Learning. All rights reserved. Statement of Cash Flows Shows how a company’s operating,
1 Chapter 12 The Statement of Cash Flows Financial Accounting, Alternate 4e by Porter and Norton.
©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren 1 The Statement of Cash Flows Chapter 12.
24-1. The Statement of Cash Flows Section 1: Sources and Uses of Cash Chapter 24 Section Objectives 1.Distinguish between operating, investing, and financing.
©2009 The McGraw-Hill Companies, Inc. Chapter 11 Statement of Cash Flows.
13-1 Preview of Chapter 13 Financial and Managerial Accounting Weygandt Kimmel Kieso.
Copyright © 2007 Prentice-Hall. All rights reserved 1 Statement of Cash Flows Chapter 13.
STATEMENT OF CASH FLOWS Accounting Principles, Eighth Edition
STATEMENT OF CASH FLOWS Managerial Accounting, Fourth Edition
Chapter 12, Slide #1 Ch.12 Statement of Cash Flows Prof. J. Wang.
© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin STATEMENT OF CASH FLOWS Chapter 13.
Chapter 14 The Statement of Cash Flows
17-1 Learning Objectives After studying this chapter, you should be able to: [1] Indicate the usefulness of the statement of cash flows. [2] Distinguish.
Chapter 15 The Statement of Cash Flows: Reporting and Analyzing.
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Statement of Cash Flows Chapter 21.
Purpose of the Statement of Cash Flows  Summarizes an entity’s cash receipts and cash payments during the period from operating, investing activities,
MGT 497 Financial Statements Prof. Rick Hayes, Ph.D., CPA.
12 7/e PowerPoint Author: Catherine Lumbattis COPYRIGHT © 2011 South-Western/Cengage Learning The Statement of Cash Flows.
1 STATEMENT OF CASH FLOWS – IAS 7 Chapter Provides information about the cash receipts and cash payments of a business entity during the accounting.
The Statement of Cash Flows The statement of cash flows reports the entity’s cash flows (cash receipts and cash payments) during the period.
CHAPTER 14 Statement of Cash Flows. The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 14-2 Reporting Format for the Statement of Cash Flows The Statement.
Chapter 12 The Statement of Cash Flows Using Financial Accounting Information: The Alternative to Debits and Credits, 6/e by Gary A. Porter and Curtis.
13-1 Preview of Chapter 13 Financial and Managerial Accounting Weygandt Kimmel Kieso.
12-1 STATEMENT OF CASH FLOWS Accounting, Fifth Edition 12.
Chapter 17-1 CHAPTER 17 STATEMENT OF CASH FLOWS Accounting Principles, Eighth Edition.
 Provide information about cash receipts and payments during an accounting period  Helps us see how financial position changes.
Page 13-1 UNIT 8 SEMINAR STATEMENT OF CASH FLOWS CHAPTER 13.
© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Statement of Cash Flows Chapter Twelve.
Statement of Cash Flows Chapter Twelve McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 16 The Statement of Cash Flows What Is the Statement of Cash Flows? The statement of cash flows reports on a business’s cash receipts and.
The Statement of Cash Flows
PreviewofCHAPTER17.
The Statement of Cash Flows
12 Introduction to Financial Accounting Information, 7/e The Statement
(2) Statement of Cash Flows
Purpose of the Statement of Cash Flows
STATEMENT OF CASH FLOWS
Statement of Cash Flow Analysis MBA Kathmandu University School of Management (KUSOM)
The Statement Of Cash Flows
Accounting, Fifth Edition
งบกระแสเงินสด(Statement of Cash Flows)
17 Statement of Cash Flows Learning Objectives
The Statement of Cash Flows
The Statement of Cash Flows
Statement of Cash Flows
Statement of Cash Flows
Gary A. Porter and Curtis L. Norton
Presentation transcript:

Purpose of the Statement of Cash Flows  Explains changes in cash over a period of time  Summarizes cash inflows and outflows from: Operating Activities Financing Activities Investing Activities LO1

Cash Equivalents  Readily convertible to cash  Little risk of price change  Original maturity to investor of three months or less Examples:  Commercial paper  U.S. Treasury bills  Certain money market funds LO2

Statement of Cash Flows Format Classified by: Operating activities Investing activities Financing activities outflows inflows Cash Increase or decrease in cash and cash equivalents + Beginning Cash and Cash Equivalents = Ending Cash and Cash Equivalents = LO3

Cash flows from operating activities: Inflows$ xxx Outflows (xxx) Net cash provided (used) by operating activities $ xxx Cash flows from investing activities: Inflows$ xxx Outflows (xxx) Net cash provided (used) by investing activities xxx Cash flows from financing activities: Inflows$ xxx Outflows (xxx) Net cash provided (used) by financing activities xxx Net increase (decrease) in cash and cash equivalents $xxx Cash and cash equivalents at beginning of year xxx Cash and cash equivalents at end of year $xxx Statement of Cash Flows Format from balance sheets

Cash transactions concerned with acquiring and selling products and services Payment of taxes Payment of wages Operating Activities Collection of customer accounts Payment to suppliers for inventory

Cash transactions concerned with acquiring and disposing of long- term assets Purchase/sale of another company Investing Activities Sale of property, plant and equipment Capital expenditures

Cash transactions concerned with the raising and repayment of funds in the form of debt and equity Issuance/retirement of bonds Financing Activities Issuance/repurchase of stock Payment of dividends Issuance/repayment of bank note

Categorizing Cash Flow Activities Current assets and current liabilities Operating Activities Long-term liabilities or stockholders’ equity Financing Activities Long-term assets Investing Activities

Noncash Investing and Financing Activities Disclose important financing and investing activities which do not require cash Exchange stock for assets Buy assets through debt financing from supplier

Methods to Report Cash from Operating Activities  Direct Method Reports major classes of gross cash receipts and cash payments The amount of cash provided by operating activities is the same under both methods  Indirect Method Adjusts net income to remove the effect of all accruals and deferrals LO4

Statement of Cash Flows Format Cash flows from operating activities: Inflows$ xxx Outflows (xxx) Net cash provided (used) by operating activities $xxx Cash flows from investing activities: Inflows$ xxx Outflows (xxx) Net cash provided (used) by investing activities xxx Cash flows from financing activities: Inflows$ xxx Outflows (xxx) Net cash provided (used) by financing activities xxx Net increase (decrease) in cash and cash equivalents $xxx Cash and cash equivalents at beginning of year xxx Cash and cash equivalents at end of year $xxx Only section of statement that differs in form between direct and indirect method (net cash flow total is the same)

Preparing the Statement Cash Flows: Direct Method  Step 1: Set up 3 schedules with the following headings: Cash Flows from Operating Activities Cash Flows from Investing Activities Cash Flows from Financing Activities  Step 2: Determine the cash flows from operating activities  Step 3: Determine the cash flows from investing activities  Step 4: Determine the cash flows from financing activities LO5

Accounts Receivable, January 1 $ 57,000 + Sales revenue 670,000 -Cash collections ( ?????) = Accounts Receivable, Dec 31 $ 63,000 - Cash collections ????? Direct Method Operating Activities Consider each of the items on the Income Statement and any related current assets or liabilities from the Balance Sheet: From Balance Sheet

Cash collections $664,000 Direct Method Operating Activities Accounts Receivable, Jan. 1 $ 57,000 + Sales on account 670,000 - Accounts Receivable, Dec 31 ( 63,000)

Inventory, Jan. 1 $ 92,000 - Inventory, Dec ,000 From Balance Sheet + Purchases on account ???? Direct Method Operating Activities = Cost of goods sold $ 390,000

Inventory, Jan. 1 $ 92,000 - Cost of Goods Sold (390,000) - Inventory, Dec 31 (84,000) = Purchases on account $ 382,000 Direct Method Operating Activities

Accounts Payable, Jan 1 $ 31,000 - Accounts Payable, Dec 31 38,000 Direct Method Operating Activities + Purchases 382,000 = Cash payments for Purchases $ 375,000

Direct Method Operating Activities There is no effect on cash flow from depreciation. Review entries recorded during period: Balance Sheet Income Statement Assets = Liabilities + Stockholders’ Revenues - Expenses = Net Equity Income Accumulated Depreciation Depreciation Expense (40,000) (40,000) (40,000) (40,000)

From Balance Sheet Prepaid Insurance, Jan 1 $18,000 + Cash payments ????? Direct Method Operating Activities -Insurance Expense (12,000) = Prepaid Insurance, Dec 31 $12,000

Prepaid Insurance, Jan 1 $18,000 - Insurance Expense 12,000 - Prepaid Insurance, Dec 31 12,000 Direct Method Operating Activities = Cash payments for Insurance $ 6,000

Cash Flows from Operating Activities Net Cash Inflows from Operating Activities $ 174, ,000 Inventory purchases 62,000 Salaries and wages 6,000 Insurance 15,000 Interest 47,000 Taxes Cash receipts from:Cash payments for: Sales on account 664,000 Interest 15,000 Schedule of Cash Flows from Operating Activities

Preparing the Statement of Cash Flows: Direct Method  Step 3: Determine the cash flows from investing activities

From Balance Sheet LT Investments, Jan 1 $ 90,000 + LT Investments purchased for cash ????? Direct Method Investing Activities - LT Investments sold ( 0) = LT Investments, Dec 31 $120,000

LT Investment, Jan 1 $ 90,000 - LT Investments sold 0 - LT Investments, Dec ,000 Direct Method Investing Activities = Cash payments for LT Investments $ 30,000

Direct Method Investing Activities Review entries recorded during period: Balance Sheet Income Statement Assets = Liabilities + Stockholders’ Revenues - Expenses = Net Equity Income Land = Notes Payable 50,000 No cash was involved in this transaction so it should be reported in a separate schedule instead of directly on the statement of cash flows.

From Balance Sheet Property and Equipment, Jan 1 $280,000 + Property and Equipment purchased 75,000 - Property and Equipment sold ????? Direct Method Investing Activities =Property and Equipment, Dec 31 $320,000

Property and Equipment, Jan 1 $280,000 +Property and Equipment purchased 75,000 - Property and Equipment, Dec 31 (320,000) Direct Method Investing Activities = Property and Equipment Sold $ 35,000

From Balance Sheet Accumulated Depreciation, Jan 1 $ 75,000 + Depreciation Expense 40,000 - Accumulated Depreciation on assets sold ????? Direct Method Investing Activities = Accumulated Depreciation, Dec 31 $100,000

Accumulated Depreciation, Jan 1 $ 75,000 + Depreciation Expense 40,000 - Accumulated Depreciation, Dec 31 (100,000) Direct Method Investing Activities = Accumulated Depreciation on Equipment Sold $ 15,000

Cash Flows from Investing Activities Net Cash Outflows from Investing Activities $80,000 30,000 Purchase of investments 75,000 Purchase of property and equipment Cash receipts from:Cash payments for: Sale of machine 25,000 Schedule of Cash Flows from Investing Activities

Preparing the Statement of Cash Flows: Direct Method  Step 4: Determine the cash flows from financing activities

Direct Method – Financing Activities Review entries recorded during period: Balance Sheet Income Statement Assets = Liabilities + Stockholders’ Revenues - Expenses = Net Equity Income Land = Notes Payable 50,000 No cash was involved in this transaction so it should be reported in a separate schedule instead of directly on the statement of cash flows.

From Balance Sheet Bonds Payable, Jan 1 $260,000 - Bonds Payable Retired ????? Direct Method Financing Activities = Bonds Payable, Dec 31 $200,000

Bonds Payable, Jan 1 $ 200,000 - Bonds Payable, Dec 31 (260,000) Direct Method Financing Activities = Bonds Payable Retired $ 60,000

From Balance Sheet Capital Stock, Jan 1 $ 75,000 + Capital Stock Sold ????? Direct Method Financing Activities = Capital Stock, Dec 31 $100,000

Capital Stock, Jan 1 $ 75,000 - Capital Stock, Dec 31 (100,000) Direct Method Financing Activities = Capital Stock Sold $ 25,000

From Balance Sheet Retained Earnings, Jan 1 $193,000 + Net income 120,000 - Cash Dividends ????? Direct Method Financing Activities =Retained Earnings, Dec 31 $246,000

Retained Earnings, Jan 1 $193,000 + Net income 120,000 - Retained Earnings, Dec 31 (246,000) Direct Method Financing Activities = Cash Dividends $ 67,000

Cash Flows from Financing Activities Net Cash Outflows from Financing Activities $105,000 63,000 Retirement of bonds 67,000 Payment of cash dividends Cash receipts from:Cash payments for: Issuance of stock 25,000 Schedule of Cash Flows from Financing Activities

Indirect Method Operating Activities Income Statement Cash Flows from Operating Activities Conversion of accrual to cash basis LO6

Bal. Jan. 1 57,000 Bal. Dec ,000 Accounts Receivable + Net increase 6,000 Indirect Method – Operating Activities Net cash flows from operating activities: Net income xx,xxx Adjustments to reconcile net income to net cash: Increase in accounts receivable (6,000) Decrease $6,000

Bal. Jan. 1 92,000 Bal. Dec ,000 Inventory - Net decrease 8,000 Indirect Method Operating Activities Net cash flows from operating activities: Net income xx,xxx Adjustments to reconcile net income to net cash: Increase in accounts receivable (6,000) Decrease in inventory 8,000 Increase $8,000

Bal. Jan. 1 $ 31,000 Bal. Dec. 31 $ 38,000 Accounts Payable +Net increase 7,000 Indirect Method – Operating Activities Net cash flows from operating activities: Net income xx,xxx Adjustments to reconcile net income to net cash: Increase in accounts receivable (6,000) Decrease in inventory 8,000 Increase in accounts payable 7,000 Increase $7,000

Bal. Jan. 1 $ 9,000 Bal. Dec. 31 $ 7,000 Salaries and Wages Payable - Net decrease 2,000 Indirect Method Operating Activities Net cash flows from operating activities: Net income xx,xxx Adjustments to reconcile net income to net cash: Increase in accounts receivable (6,000) Decrease in inventory 8,000 Increase in accounts payable 7,000 Decrease in salaries and wages payable (2,000) Increase $2,000

Bal. Jan. 1 $18,000 Bal. Dec. 31 $12,000 Prepaid Insurance - Net decrease 6,000 Indirect Method Operating Activities Net cash flows from operating activities: Net income xx,xxx Adjustments to reconcile net income to net cash: Increase in accounts receivable (6,000) Decrease in inventory 8,000 Increase in accounts payable 7,000 Decrease in salaries and wages payable (2,000) Decrease in prepaid insurance 6,000 Decrease $6,000

Bal. Jan. 1 $5,000 Bal. Dec. 31 $8,000 Income Taxes Payable +Net increase 3,000 Indirect Method – Operating Activities Net cash flows from operating activities: Net income xx,xxx Adjustments to reconcile net income to net cash: Increase in accounts receivable (6,000) Decrease in inventory 8,000 Increase in accounts payable 7,000 Decrease in salaries and wages payable (2,000) Decrease in prepaid insurance 6,000 Increase in income taxes payable 3,000 Increase $3,000

Indirect Method Operating Activities Net cash flows from operating activities: Net income xx,xxx Adjustments to reconcile net income to net cash: Increase in accounts receivable (6,000) Decrease in inventory 8,000 Increase in accounts payable 7,000 Decrease in salaries and wages payable (2,000) Decrease in prepaid insurance 6,000 Increase in income taxes payable 3,000 Gain on sale of machine (5,000) Depreciation expense 40,000 Loss on retirement of bonds 3,000 Add back noncash expense Gain is not part of operating activities Report entire outflow as a financing activity

Cash Flow Adequacy  Measures company’s ability to meet principal and interest obligations  Creditors concerned with cash available to repay debts after company has replaced and updated its existing base of long-term assets Cash Flow from Operating Activities – Capital Expenditures Average Amount of Debt Maturing over Next Five Years LO7

Appendix Accounting Tools: A Work-Sheet Approach to the Statement of Cash Flows

Indirect Method: Using a Work Sheet Enter account balances LO8 12/31/12 12/31/11

Indirect Method: Using a Work Sheet 12/31/12 12/31/11 Record investing and financing activities

Indirect Method: Using a Work Sheet Enter net income 12/31/12 12/31/11

Indirect Method: Using a Work Sheet Enter noncash revenues or expenses 12/31/12 12/31/11

Indirect Method: Using a Work Sheet Extend current assets and current liabilities 12/31/12 12/31/11

Indirect Method: Using a Work Sheet Total columns 12/31/12 12/31/11

Indirect Method: Using a Work Sheet Determine net cash inflow (outflow) 12/31/12 12/31/11

End of Chapter 12