© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin STATEMENT OF CASH FLOWS

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Information about the cash receipts and cash payments of during the accounting period. Positive Cashflow? Positive Cashflow? Liquidity, dividends? Liquidity, dividends? Need financing? Need financing? Invested money, got financing? Invested money, got financing? Positive Cashflow? Positive Cashflow? Liquidity, dividends? Liquidity, dividends? Need financing? Need financing? Invested money, got financing? Invested money, got financing? Purpose of the Statement of Cash Flows

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin + _ Inflows from: Interest and dividends received. Sales to customers. Inflows from: Interest and dividends received. Sales to customers. Cash Flows from Operating Activities Operating Activities Outflows to: Suppliers of merchandise and services. Employees. Lenders for interest. Governments for taxes. Outflows to: Suppliers of merchandise and services. Employees. Lenders for interest. Governments for taxes.

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Cash Flows from Investing Activities + _ Inflows from: Selling investments and plant assets. Collecting of principal on loans. Inflows from: Selling investments and plant assets. Collecting of principal on loans. Outflows to: Purchase of investments and plant assets. Make loans (giving loans to somebody). Outflows to: Purchase of investments and plant assets. Make loans (giving loans to somebody). Investing Activities

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin + _ Inflows from: Short-term and long-term borrowing. Owners (for example, from issuing stock). Inflows from: Short-term and long-term borrowing. Owners (for example, from issuing stock). Outflows to: Make payments on borrowed funds. Owners for dividends. Outflows to: Make payments on borrowed funds. Owners for dividends. Financing Activities Cash Flows from Financing Activities

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Let’s look at the indirect method that is used by over 97% of all companies.

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Net Income Cash Flows from Operating Activities Indirect Method – Cash Flows from Operating Activities Changes in current assets and current liabilities as shown on the following table. + Losses and - Gains + Noncash expenses such as depreciation

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Use this table when adjusting Net Income to Operating Cash Flows. Indirect Method

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Use this table when adjusting Net Income to Operating Cash Flows. Indirect Method

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Joyce, Inc. has prepared the Balance Sheet as of March 31, 2013, and March 31, The Income Statement for the year ended 3/31/14 has also been prepared. Joyce needs help preparing the Statement of Cash Flows using the indirect method. Indirect Method

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Indirect Method The $8,000 gain was the result of selling land costing $32,000 for $40,000 cash during the period.

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Indirect Method

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Indirect Method Joyce issued $50,000 of common stock to settle the $50,000 note payable.

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Indirect Method

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin With the indirect method, always start with the net income or net loss for the period. Indirect Method

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Indirect Method

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Indirect Method Accounts receivable decreased. 3/31/14 3/31/13 $23,000 - $40,000 = $(17,000) Accounts receivable decreased. 3/31/14 3/31/13 $23,000 - $40,000 = $(17,000)

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Indirect Method Accounts payable increased. 3/31/14 3/31/13 $38,000 - $27,000 = $11,000 Accounts payable increased. 3/31/14 3/31/13 $38,000 - $27,000 = $11,000

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Indirect Method Inventory increased. 3/31/14 3/31/13 $350,000 - $300,000 = $50,000 Inventory increased. 3/31/14 3/31/13 $350,000 - $300,000 = $50,000

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Indirect Method Salaries payable decreased. 3/31/14 3/31/13 $ 9,000 - $14,000 = $(5,000) Salaries payable decreased. 3/31/14 3/31/13 $ 9,000 - $14,000 = $(5,000)

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Add back non-cash expenses. Indirect Method

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Subtract gains. Indirect Method

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Indirect Method The operating cash flows amount comes from the schedule just prepared.

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Indirect Method Land originally costing $32,000 was sold for $40,000.

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Indirect Method Dividends of $20,000 were paid to owners during the year.

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Indirect Method Compute the net change in cash for the period.

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Indirect Method Complete the Statement of Cash Flows by reconciling beginning cash to ending cash.

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Note that the ending cash amount ties back to Joyce’s Balance Sheet at 3/31/14. Indirect Method

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin In addition, on the face of the statement or in a supplemental schedule, disclose the $50,000 noncash financing activity. Indirect Method

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Cash Budgets are used by management to plan and forecast future cash flows. Managing Cash Flows

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin The ending cash balance of one month becomes the beginning cash balance of the next month. Using a Spreadsheet

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Financing is needed in June because the company must maintain a minimum cash balance of $10,000. Using a Spreadsheet

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin End of SCF