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  • Net Change in Cash & Cash Equivalents: the net change can be an INCREASE or DECREASE. This change ties to the beginning and end-of-year balance sheet accounts.
  • Net Change in Cash & Cash Equivalents: the net change can be an INCREASE or DECREASE. This change ties to the beginning and end-of-year balance sheet accounts.
  • The net cash provided (used) by operating activities is the same number regardless of which method is used (direct or indirect method). It is the detail used to arrive at the number that differs. The other two sections (investing and financing activities are the same under both methods.
  • Net Change in Cash & Cash Equivalents: the net change can be an INCREASE or DECREASE. This change ties to the beginning and end-of-year balance sheet accounts .
  • Net Change in Cash & Cash Equivalents: the net change can be an INCREASE or DECREASE. This change ties to the beginning and end-of-year balance sheet accounts.
  • Transcript

    • 1. Chapter 12: Statement of Cash Flows
      • Pre-Statement of Cash Flows (before 1987)
      • Statement of Cash Flows (1987)
      • Research
    • 2. Statement of Changes in Financial Position
      • Reported on changes in assets, liabilities, and owners’ equities account balances
      • Recommended, but not required for inclusion in the annual report until 1971
      • Objectives
        • Disclosure of changes in financial position
        • Summarize financing and investing activity
        • Report funds flow from operations
    • 3. Statement of Changes in Financial Position
      • Sources of resources
        • Transaction credits
        • Arise from increases in liabilities and owners’ equity and decreases in assets
      • Uses of resources
        • Transaction debits
        • Arise from decreases in liabilities and owners’ equity and increases in assets
    • 4. Standard Format of the Statement of Changes in Financial Position
      • Increases to fund balance accounts
        • From net income
        • From other sources
      • Other sources of resources
      • Decrease, if any, in the fund balance for the period
      • Decreases to the fund balance accounts
        • From net losses
        • From other sources
      • Other uses of resources
      • Increase, if any, in the fund balance for the period
      Sources of Resources Uses of Resources
    • 5. Early FASB Discussion Memo
      • Provide feedback on actual cash flows
      • Help to identify the relationship between accounting income and cash flows
      • Provide information about the quality of income
      • Improve comparability of information in financial reports
      • Aid in assessing flexibility and liquidity
      • Assist in predicting future cash flows
    • 6. Statement of Cash Flows Cash & Cash Equivalents at Beginning of Year Cash & Cash Equivalents at End of Year Cash Flows from Operating Activities Net Change in Cash & Cash Equivalents Cash Flows from Investing Activities Cash Flows from Financing Activities
    • 7. Definition: Cash
      • Literal cash on hand or on demand deposit plus cash equivalents
      • Cash equivalents are highly liquid assets that are convertible to known amounts of cash and have short-term maturities
    • 8. Statement of Cash Flows Cash & Cash Equivalents at Beginning of Year Cash & Cash Equivalents at End of Year Cash Flows from Operating Activities Net Change in Cash & Cash Equivalents Cash Flows from Investing Activities Cash Flows from Financing Activities
    • 9. Operating Activities Section
      • Direct method reports literal cash flows related to income statement classifications
        • FASB appears to favor
        • Cost to prepare > than with indirect method
      • Indirect or reconciliation method starts with accrual income and adjusts it for the noncash items in it
        • In 1996, 98% of American firms use
        • Nonarticulation problems
    • 10. Direct vs. Indirect Method
      • Operating activities section is the only section that differs
      • The investing and financing activities sections are the same under both methods
    • 11. Statement of Cash Flows Cash & Cash Equivalents at Beginning of Year Cash & Cash Equivalents at End of Year Cash Flows from Operating Activities Net Change in Cash & Cash Equivalents Cash Flows from Investing Activities Cash Flows from Financing Activities
    • 12. Investing Activities Section: Examples
      • Proceeds from sale of facility
      • Payment received on note for sale of plant
      • Capital expenditures
      • Payment for purchase of company X, net of cash acquired
    • 13. Statement of Cash Flows Cash & Cash Equivalents at Beginning of Year Cash & Cash Equivalents at End of Year Cash Flows from Operating Activities Net Change in Cash & Cash Equivalents Cash Flows from Investing Activities Cash Flows from Financing Activities
    • 14. Financing Activities Section: Examples
      • Net borrowings under line-of-credit agreement
      • Principal payments under capital lease obligation
      • Proceeds from issuance of long-term debt
      • Proceeds from issuance of common stock
      • Dividends paid
    • 15. SFAS No. 95 Classification Issues
      • Appearing in operating activities section
        • Interest expense
        • Interest revenue
        • Dividend revenue
      • Related balance sheet items (bonds payable, stock investments, and long-term notes receivable) are either financing or investing elements
    • 16. Ingram and Lee (1997)
      • 1,000 firms over the period 1974-1992
      • Use the income statement and the cash flow statement together
      • Over time growing firms will have higher income and lower cash flows
      • Reverse occurs for shrinking firms
    • 17. Chapter 12: Statement of Cash Flows
      • Pre-Statement of Cash Flows (before 1987)
      • Statement of Cash Flows (1987)
      • Research

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