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2.  Provide information about cash receipts and payments during an accounting period  Helps us see how financial position changes during an accounting period  Only statement that collects and shows in one statement the causes of changes in cash during a financial reporting period www.AssignmentPoint.com

3.  Cash includes currency on hand and demand deposits  Cash equivalents are short-term, highly liquid investments that are www.AssignmentPoint.com

4.  Cash includes currency on hand and demand deposits  Cash equivalents are short-term, highly liquid investments that are ◦ Readily convertible to known amounts of cash www.AssignmentPoint.com

5.  Cash includes currency on hand and demand deposits  Cash equivalents are short-term, highly liquid investments that are ◦ Readily convertible to known amounts of cash ◦ So near maturity that they are not likely to change in value due to changes in interest rates www.AssignmentPoint.com

6.  Operating activities  Investing activities  Financing activities www.AssignmentPoint.com

7.  Transactions that generally involve producing and delivering goods and providing services  Inflows ◦ selling goods and services, interest and dividend revenue  Outflows ◦ inventory, salary exp, interest exp www.AssignmentPoint.com

8.  Buying and selling plant assets and securities, and making loans and collecting on them  Inflows ◦ sale of plant assets and investment securities, collecting loans  Outflows ◦ purchasing plant assets, investment securities www.AssignmentPoint.com

9.  Obtaining resources from owners and providing return, and obtaining resources from creditors and repaying principal  Inflows ◦ issuing stock, bonds, other short and long-term borrowing  Outflows ◦ purchasing treasury stock, repaying principal, cash dividends www.AssignmentPoint.com

10.  Generally, information on gross receipts and payments more relevant ◦ When issuing long-term debt to retire other debt, show both  Noncash investing and financing ◦ Acquiring plant assets by issuing notes payable ◦ Converting bonds payable into common stock www.AssignmentPoint.com

11.  Overall, how successful has management been in generating and investing cash flows?  How does accrual basis net income compare with cash basis? www.AssignmentPoint.com

12.  What cash uses have been made for investing activities, and to what extent has cash from operations been sufficient to pay for these investments?  What sources and uses have been generated from financing activities? www.AssignmentPoint.com

13.  Direct shows major classes of gross cash receipts and cash payments ◦ Difference is net cash provided by, used in, operating activities  Indirect starts with net income (loss) and adjusts for revenues and expenses that did not cause changes in cash  FASB encourages use of the direct method www.AssignmentPoint.com

14.  Goal to convert each income statement item from accrual to cash basis  First, identify the balance sheet account(s) that relate to each income statement item  Next, combine the change in the balance sheet account with the income statement amount www.AssignmentPoint.com

15.  Cash receipts from customers relates sales to change in accounts receivable  If accounts receivable decreased during the period, we collected more cash than amount reported as sales revenue  If accounts receivable increased during the period, we collected less cash that amount reported as sales revenue www.AssignmentPoint.com

16.  Take sales amount and ◦ Add decrease in accounts receivable ◦ OR ◦ Subtract increase in accounts receivable www.AssignmentPoint.com

17.  Cash Payments to Suppliers relates cost of goods sold to change in merchandise inventory and change in accounts payable  First use cost of goods sold and change in inventory to calculate purchases  If inventory increased during the period, we purchased more goods than we sold  If inventory decreased during the period, we purchased fewer goods than we sold www.AssignmentPoint.com

18.  To calculate purchases, take cost of goods sold amount and ◦ Add increase in inventory ◦ OR ◦ Subtract decrease in inventory  This gives us accrual purchases www.AssignmentPoint.com

19.  Second use purchases and change in accounts payable to calculate cash payments to suppliers  If accounts payable increased during period, we paid less cash than purchases  If accounts payable decreased during period, we paid more cash than purchases www.AssignmentPoint.com

20.  To calculate cash payments to suppliers, take purchases amount and ◦ Add decrease in accounts payable ◦ OR ◦ Subtract increase in accounts payable www.AssignmentPoint.com

21.  Cash payments for expenses relate the expense to a change in an accrued expense account or a prepaid expense ◦ Cash payments for wages relates wages expense and change in wages payable ◦ Cash payments for office supplies relates office supplies expense and changes in office supplies www.AssignmentPoint.com

22.  To calculate cash payments for expenses, take the expense amount and ◦ Add decrease in accrued expense ◦ OR ◦ Subtract increase in accrued expense ◦ OR ◦ Add increase in prepaid expense ◦ OR ◦ Subtract decrease in prepaid expense www.AssignmentPoint.com

23.  Cash receipts for revenues relate the revenue to a change in an unearned revenue account or accrued revenue ◦ Cash receipts from interest relates interest revenue and change in interest receivable ◦ Cash receipts from subscriptions relates subscriptions revenue and changes in unearned subscriptions www.AssignmentPoint.com

24.  To calculate cash receipts from revenues, take the revenue amount and ◦ Add decrease in accrued revenue ◦ OR ◦ Subtract increase in accrued revenue ◦ OR ◦ Add increase in unearned revenue ◦ OR ◦ Subtract decrease in unearned revenue www.AssignmentPoint.com

25.  Starts with net income(loss) from the income statement.  Adjusts for revenues and expenses that did not cause a change in cash  Results in same total as direct method  FASB encourages use of direct  Believes that reconciliation of net income to cash provided by operations is useful information www.AssignmentPoint.com

26.  Net income  Add ◦ Expenses that did not use cash and losses on sale of noncurrent assets  Subtract ◦ Gains on sales of noncurrent assets www.AssignmentPoint.com

27.  Add ◦ Decreases in operating current assets ◦ Increases in operating current liabilities  Subtract ◦ Increases in operating current assets ◦ Decreases in operating current liabilities www.AssignmentPoint.com

28.  Analyze changes in nonoperating current assets and noncurrent assets ◦ If equipment increased, there was a purchase of new equipment ◦ If equipment decreased, there was a disposal of old equipment  If there was more than one change, analyze each separately  Identify the cash flow from each transaction www.AssignmentPoint.com

29.  Analyze changes in nonoperating current liabilities, noncurrent liabilities, paid-in capital, and nonoperating changes to retained earnings(dividends) ◦ If bonds increased, there was an issuance of bonds ◦ If paid-in capital increased, there was an issuance of stock www.AssignmentPoint.com

30.  If dividends were declared, combine amount declared with change in dividends payable to get cash dividends  If there was more than one change, analyze each separately  Identify the cash flow from each transaction www.AssignmentPoint.com

31.  Compute the net change in cash and cash equivalents  Compute the amount of net cash provided by (used in) operating activities by direct method  Prepare the reconciliation of net income to net cash provided by (used in) operating activities by indirect method www.AssignmentPoint.com

32.  Compute the amount of net cash provided by (used in) investing and financing activities  Prepare the statement of cash flows www.AssignmentPoint.com

33.  Overall, how successful has management been in generating and investing cash flows during the period?  How does accrual net income compare with cash net income? www.AssignmentPoint.com

34.  What cash uses have been made for investing activities and to what extent has cash from operations been sufficient to pay for these investments?  What sources and uses have been generated from financing activities? www.AssignmentPoint.com