2. Copyright © 2014 Nelson Education Ltd. 3–1 PowerPoint Presentations for Finance for Non-Financial Managers: Seventh Edition Prepared by Pierre Bergeron University of Ottawa

3. Copyright © 2014 Nelson Education Ltd. 3–2 CHAPTER 3 Statement of Cash Flows

4. Copyright © 2014 Nelson Education Ltd. 3–3 1.Explain the importance of managing cash flows. 2.Analyze cash flows by comparing two consecutive statements of financial position. 3.Describe the basic structure of the statement of cash flows. 4.Discuss the structure of the statement of cash flows for not-for-profit organizations. Learning Objectives

5. Copyright © 2014 Nelson Education Ltd. 3–4 Key Cash Flow Drivers LO 2

6. Copyright © 2014 Nelson Education Ltd. 3–5 Importance of Managing Cash Flow Internal inflow External inflow Profit for the year Equity Depreciation Working capital Debt Leasing Contributions Outflow Managers Investors Operating activities Financing activities Investing activities $100,000 $75,000 or 75% $25,000 or 25% LO 1

7. Copyright © 2014 Nelson Education Ltd. 3–6 Cash Flow Analysis Mortgage House Term deposits Automobile Visa account RRSP Savings account Total $150,000 217,000 5,000 20,000 2,000 28,000 3,000 OutflowsInflows $130,000 200,000 15,000 10,000 1,000 25,000 2,000 20122013 Statements of Financial Position ---- 1,000 $ 31,000 ---- $ 17,000 10,000 ---- 10,000 1,000 ---- 3,000 $ 20,000 ---- LO 2

8. Copyright © 2014 Nelson Education Ltd. 3–7 John Badboy’s Statements of Financial Position Assets House Car Trailer Furniture Term deposits Cash in the bank Total assets $ 178,000 30,000 10,000 14,000 --- 1,000 $233,000 $ 168,000 16,000 ----- 12,000 2,000 $200,000 ----- $ 2,000 1,000 $ 10,000 14,000 10,000 2,000 ----- InflowsOutflows 20132012 $ 98,000 $ 5,000 Liabilities Trust company Bank loan Sears The Bay MasterCard Brother-in-law Total liabilities Total equity & liabilities 120,000 4,000 3,000 2,000 3,000 135,000 $233,000 $ 93,000 100,000 2,500 1,000 500 1,000 2,000 107,000 $200,000 20,000 1,500 2,000 1,500 2,000 1,000 $ 36,000 ----- $ 36,000 Equity LO 2

9. Copyright © 2014 Nelson Education Ltd. 3–8 Comparative Statements of Financial Position (Futurama Ltd.) 20132012 InflowsOutflows 97,500 $ 399,500 47,500 $ 399,500 $ 300,000 255,000 555,000 $ 285,000 205,000 490,000 $352,000 800,000 195,000 150,000 20,000 80,000 445,000 $1,800,000 600,000 175,000 135,000 18,000 70,000 398,000 $1,488,000 20,000 15,000 2,000 10,000 ----- Assets Non-current assets (at cost) Accumulated depreciation Non-current assets (net) Current assets Inventories Trade receivables Prepaid expenses Cash and cash equivalents Total current assets Total assets Share capital Retained earnings Equity Liabilities Long-term borrowings Current liabilities Trade and other payables Notes payable Accrued expenses Current income taxes payable Total current liabilities Total equity & liabilities $1,340,000 (140,000) 1,200,000 218,000 300,000 60,000 22,000 600,000 $1,800,000 $ 1,050,000 (100,000) 950,000 185,000 280,000 55,000 18,000 538,000 $1,488,000 ----- $40,000 ----- 15,000 50,000 200,000 $ 290,000 ---- 33,000 20,000 5,000 4,000 ----- LO 2

10. Copyright © 2014 Nelson Education Ltd. 3–9 Futurama Ltd. Revenue$2,500,000 Cost of sales (1,900,000) Gross profit 600,000 Operating expenses Salaries (300,000) Rent (50,000) Depreciation (40,000) Other expenses (15,000) Total expenses (405,000) Profit before taxes 195,000 Income tax expense (97,500) Profit for the year $ 97,500 Retained earnings: beginning of the year $ 205,000 Earnings for the year$ 97,500 Less: Dividends (47,500) 50,000 Retained earnings: end of the year$ 255,000 Statement of Retained Earnings For the year ended December 31, 2013 Statement of Income For the year ended December 31, 2013 LO 2

11. Copyright © 2014 Nelson Education Ltd. 3–10 Rules to Identify Inflows and Outflows of Cash Equity accounts Asset accounts Liability accounts Outflows of cash Inflows of cash LO 2

12. Copyright © 2014 Nelson Education Ltd. 3–11 Investing Activities Purchase of non-current assets290,000 3. Structure of the Statement of Cash Flows Increase in cash $ 4,000 Cash at beginning of year 18,000 Cash at end of year 22,000 $126,500 Futurama Ltd. Statement of Cash Flows For the Year Ended December 31, 2013 1. Operating Activities Profit for the year$97,500 Depreciation 40,000 Adjustments in non-cash working capital (11,000) Total SI SI or SFP SFP ($290,000) ($4,000) 2. Financing Activities Payment of dividends$(47,500) Long-term borrowings 200,000 Share capital 15,000 Total $167,500 SFP SRE LO 3

13. Copyright © 2014 Nelson Education Ltd. 3–12 Statement of Cash Flows for NFP Net (decrease) Increase in Cash and Term Deposits Cash and term deposits, beginning of year Cash and term deposits, end of year Not-For-Profit Organization Statement of Cash Flows For the Year Ended December 31, 2013 1. Operating Activities Excess of revenues over expenses Depreciation of non-current assets Adjustments in working capital 2. Financing and Investing Activities Purchase of investments Purchase of capital assets Mortgage Contributions of cash endowments 3. LO 4