2. HFT 3431 Chapter 4 Statement of Cash Flows

3. The Statement of Cash Flows Answers u u How Much Cash Was Provided by Operations u u What Amount of Property and Equipment Was Purchased u u How Much Long Term Debt Was Borrowed

4. The Statement of Cash Flows Answers u u What Funds Were Raised by the Sale of Capital Stock u u What Amount of Dividends Were Paid u u How Much Was Invested in Long Term Investments

5. The Statement of Cash Flows u u Required Statement Since 1988 by the FASB u u Replaces the Statement of Changes in Financial Position

6. The Statement of Cash Flows u u Focused on Cash Changes From è èOperating Activities è èInvesting Activities è èFinancing Activities

7. Purpose for Completing the SCF u Statements are done on the accrual basis u Reconciles changes in cash position with the financial statements u When would it not be necessary to complete a Statement of Cash Flows?

8. The Statement of Cash Flows u u Cash = Cash + Cash Equivalents – –Equivalents = Short term investments of 90 days or less – –Transfers between cash and equivalents are not listed on SCF

9. Use and Purpose of The Statement of Cash Flows u u Assess Ability to Generate Future Cash Flows u u Assess Ability to Meet Current Obligations u u Shows the Difference Between Net Income and Cash Generated

10. Use and Purpose of The Statement of Cash Flows u u Shows the Effect of Cash and Non Cash Financing and Investing Activities u u Internal and External Users

11. Use and Purpose of The Statement of Cash Flows Management u u Assess Liquidity u u Assess Financial Flexibility u u Determine Dividend Policy u u Plan Investing and Financing

12. Use and Purpose of The Statement of Cash Flows Investors and Creditors u u Assess Ability to Pay Bills u u Assess Ability to Pay Dividends u u Assess Need for Financing

13. Six Steps...   Determine Change in Cash Account - The “Answer”   Summarize Operating Activities Cash in From Sale of Services Cash in From Interest and Dividends Cash Out for Expenses & Taxes Cash Out for Interest on Debt

14. Six Steps...   Summarize Investing Activities Cash in From Property Sales Cash in From Investment and Security Sales Cash Out for Loans and Purchases of Property and Investments

15. Six Steps...   Summarize Financing Activities Cash in From Sale of Stock Cash in From Issuing Debt Cash Out for Paying Debt Principal Cash Out for Treasury Stock Cash Out for Dividends

16. Six Steps...   Schedule of Non-cash Investing and Financing Activities Exchange of Capital Stock for Property and Equipment Capital Lease Obligations Incurred

17. Six Steps...   Present the Statement of Cash Flows Cash Flows From Operating Activities Cash Flows From Investing Activities Cash Flows From Financing Activities

18. Six Steps...   Present the Statement of Cash Flows Continued Net Increase (Decrease) in Cash Cash At Beginning of Period Cash At End of Period (given) Supplemental Schedule - Non Cash Transactions

19. Operating Activities - Direct Method u u Accrual Accounting - Recognize Expenses When Incurred Revenue When Earned. u u Convert Each Item on the Income Statement From Accrual Basis Accounting to Cash Basis Accounting

20. Accounting for Changes in Accounts u u A Decrease in an Asset Is Added to Net Income u u An Increase in an Asset Is Deducted From Net Income

21. Accounting for Changes in Accounts u u A Decrease in a Liability / Equity Account Is Deducted From Net Income u u An Increase in a Liability / Account Is Added to Net Income

22. Completing the Statement of Cash Flows u Begin with Net Income u Add or Subtract Changes in Balance Sheet Accounts u Add Together – Should Give you Change in Cash for the Period u Add to Beginning Cash Balance u Should Equal Ending Cash Balance