The Statement of Cash Flows
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The Statement of Cash Flows

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The Statement of Cash Flows The Statement of Cash Flows Presentation Transcript

  • The Statement of Cash Flows Chapter 17 AGRICULUTURAL TECHNICAL INSTITUTE BUS TEC T101 ACCOUNTING
  • ACCOUNTING CONCEPTS
    • CH 1: ACCT & THE BUS ENVIRONMENT
    • CH 2: RECORDING TRANSACTIONS
    • CH 3: MEASURING INCOME; ADJUSTMENTS
    • CH 4: COMPLETING THE ACCTING CYCLE
    • CH 5: MERCHANDISE OPERATIONS
    • CH 6: MERCHANDISE INVENTORY
    • CH 7: SPECIAL JOURNALS
    • CH 8: CONTROLLING CASH
    • CH 9: RECEIVABLES
    • CH 10: PLANT ASSETS & INTANGIBLES
    • CH 11: CURRENT LIABILTIES & PAYROLL
    • CH 17: CASH FLOW
  • LEARNING OBJECTIVES
    • AFTER COMPLETING THIS LESSON, THE STUDENT SHOULD BE ABLE TO:
    • 1. Identify purposes of the statement of cash flows.
    • 2. Distinguish among operating, investing, and financing cash flows.
    • 3. Prepare a of cash flow statement by direct method in the proper format
    CH 17: CASH FLOW STATEMENT
  • The statement of cash flows reports the entity’s cash flows (cash receipts [cash in] & cash payments [cash out] ) during the period. OBJ 1 658 Purposes Of Cash Flow Statement
  • Statement of Retained Earnings 12/31/x1 For the Year Ended 12/31/x2 12/31/x2 (a point in time) (a period of time) (a point in time) Statement of Cash Flows Income Statement Balance Sheet Balance Sheet OBJ 1 658 Purposes Of Cash Flow Statement
    • show the relationship of net income to changes in the firm’s cash
    OBJ 1 658 Purposes Of Cash Flow Statement The statement of cash flows is designed to
    • predict future cash flows
    • evaluate management decisions
    • determine the ability to pay dividends plus interest and principal
  • Cash Includes...
    • cash on hand.
    • cash in the bank.
    • cash equivalents.
    OBJ 1 658 Purposes Of Cash Flow Statement
    • short-term, highly liquid investments convertible into cash with little delay.
    • money market accounts.
    • U.S. Government Treasury bills.
  • Operating Activities Operating activities are related to everyday transactions that make up net income Interest & dividends received are related to investing activities. However, the FASB has decided to classify these items as operating. OBJ 2 659 Distinguish Between Operating, Investing, & Financing Cash Flows A business may be evaluated in terms of three types of business activities: 1. Operating, 2. Investing, 3. Financing 0 IN OUT SALES EXPENSES
  • Investing Activities OBJ 2 659 Distinguish Between Operating, Investing, & Financing Cash Flows Investing activities increase & decrease the assets that are available to the business. Investing activities are related to the purchases and sales of long term assets . Purchases Sales
  • Financing Activities These are transactions involving obtaining & returning resources to creditors or owners Paying Back Loans OBJ 2 659 IN OUT Borrowing Money, Selling stock, Paying Dividends, Buying Back Stock, 0 Distinguish Between Operating, Investing, & Financing Cash Flows
  • WHEN: PERIOD OF TIME
    • B. OPERATING ACTIVITIES
    III. CASH FLOW FORMAT A. HEADING WHAT: CASH FLOW STATEMENT WHO: NAME OF BUSINESS E. SUMMARY 1. CASH FLOWING IN 2. CASH FLOWING OUT D. FINANCING ACTIVITIES C. INVESTING ACTIVITIES 1. CASH FLOWING IN 2. CASH FLOWING OUT 1. CASH FLOWING IN 2. CASH FLOWING OUT Distinguish Between Operating, Investing, & Financing Cash Flows OBJ 2 659
    • 1. BEGINNING CASH BALANCE
    E. CASH FLOW SUMMARY 2. NET CHANGE IN CASH 3. ENDING CASH BALANCE Distinguish Between Operating, Investing, & Financing Cash Flows OBJ 2 659 0
  • D. WHAT DOES NOT GO ON THE CASH FLOW STATEMENT
    • 1. ASSETS
    • 2. LIABLITIES
    • 3. INCREASES/DECREASES IN LIABILITIES
    • 4. DEPRECIATION
    • 5. INVENTORY INCREASES/ DECREASES
    • 6. PERSONAL RECEIPTS
    • 7. PERSONAL EXPENSES
    0 Distinguish Between Operating, Investing, & Financing Cash Flows OBJ 2 659
  • Format of the Statement of Cash Flows
    • FASB has approved two methods for reporting cash flows from operating activities.
    Direct Method Indirect Method
    • The indirect method starts with net income and reconciles it to net cash from operating activities.
    • The direct method lists cash receipts from specific operating activities and cash payments for each major operating activity.
    Prepare A Cash Flow Statement By Direct Method In Proper Format OBJ 3 676
  • Operating Receipts: Payments Received Prepare A Cash Flow Statement By Direct Method In Proper Format OBJ 3 676 B. Cash Flows From Operating Activities: IN Net Cash Flow From Operating Activities Operating Expenses: Payments made OUT Cash Sales To Vendors Interest Received For Interest Collect Receivables To Employees For Co. Taxes 0 $ 68
  • Proceeds from sale of plant assets Prepare A Cash Flow Statement By Direct Method In Proper Format OBJ 3 676 C. Cash Flows From Investing Activities: IN Net Cash Flow From Investing Activities Purchase of plant assets OUT Sale of Land Purchase of Floral Cooler Sale of Building Investment in Another Company Sale of Equip (-255)
  • Proceeds Increasing Financial Base Prepare A Cash Flow Statement By Direct Method In Proper Format OBJ 3 676 D. Cash Flows From Financing Activities: IN Net Cash Flow From Financing Activities Paying Off Debts OUT Issuing Stock Dividend Payment Borrowing Money Paying off Notes Payable Debt Repayment Adding a Partner 167
  • Prepare A Cash Flow Statement By Direct Method In Proper Format OBJ 3 676 E. Cash Flows Summary From All Activities: Cash Balance, December 31, 2001 42 Cash Balance, December 31, 2002 Net Change in Cash Net Cash Flow Fr Operating Activities $ 68 Net Cash Flow Fr Investing Activities (-255) 167 Net Cash Flow Fr Financing Activities $(20) $ 22
  • SUMMARY
    • A. THE CASH FLOW STATEMENT SUMMARIZES THE FLOW OF CASH IN & OUT OF THE BUSINESS.
    • B.CASH FLOW TRANSACTIONS CAN BE CLASSIFIED AS OPERATING , INVESTING , & FINANCING
    Chapter 17: CASH FLOW C. YOU CAN USE THE DIRECT OR INDIRECT METHOD FOR THE CASH FLOW STATEMENT
  • Exercise 17-8 Pg 686 Collection of Acct Pay YES OPERATING Issue Lng Term Note Pay YES FINANCING Depreciation NO NON-CASH Repurchase of Stock YES FINANCING Issue Common Stock YES FINANCING Payment of Acct Payable YES OPERATING Issue Preferred Stock YES FINANCING Pay Cash Dividend YES FINANCING Sale of Land YES INVESTING Long Term Debt Payment YES FINANCING Purchase of Equipment YES INVESTING Pay Employee Wages YES OPERATING Collection of interest YES OPERATING Sale of Building YES INVESTING IN IN OUT IN OUT OUT OUT IN OUT OUT OUT IN IN
  • CASH FLOW SELF TEST PURCHASE OF CURR ASSETS YES OPER LAND OWNED NO LT ASSET PURCHASED COWS NO WK ASSET BORROWING FOR MACH YES FIN DEPRECIATION NO NON CASH SALE OF DELIVERY TRUCK YES INVEST SALE OF GREENHOUSE CROPS YES OPER LOAN PAYMENT YES FIN PAYMENT OF SOC SEC TAX YES OPER OWED FOR SUPPLIES NO LIAB INCREASE IN INVENTORIES NO NON-CASH
  • AGRICULUTURAL TECHNICAL INSTITUTE BUS TEC T101 ACCOUNTING This Is the End For Me !!!!
  • The Indirect Method Current Assets other than cash Add to Net Income if this account has decreased Deduct from Net Income if this account has increased Sale of Long Term Assets Add to Net Income if there was a loss Deduct from Net Income if there was a gain
  • The Indirect Method Current Liabilities Add to Net Income if this account has increased Deduct from Net Income if this account has de creased Depreciation Expense Add to Net Income
  • The Indirect Method Statement of Cash Flows ( Indirect Method ) Year Ended December 31, 2002 (Thousands) Cash flows from operating activities: Net Income $41 Add (deduct) items that affect net income and cash flows differently: Depreciation 18 Gain on sale of plant 8 Increase in accounts receivable (13) Increase in interest receivable (2) Decrease in inventory 3
  • The Indirect Method Add (deduct) items that affect net income and cash flows differently: Increase in prepaid expenses (1) Increase in accounts payable 34 Decrease is salary payable (2) Decrease in accrued liabilities (2) Net cash inflow from operating activities $68 Statement of Cash Flows ( Indirect Method ) Year Ended December 31, 2002 (Thousands)
  • Cash Flows from Investing Activities
    • Acquisition and Sales of Plant Assets
    • The business had plant assets net of depreciation of $219,000 at the beginning of the year and $453,000 at year end.
    • Further, the acquisition of plant assets amounted to $306,000 during the year.
  • Acquisition and Sales of Plant Assets
    • The income statement shows depreciation expense of $18,000 and a $8,000 gain on sale of plant assets.
    • What is the book value of the assets sold?
    • Beginning net balance + Acquisitions – Depreciation – Book value of assets sold = Ending balance
  • Acquisition and Sales of Plant Assets
    • $219,000 + $306,000 – $18,000 – x = $453,000
    • x = $219,000 + $306,000 – $18,000 – $453,000
    • x = $54,000 (book value)
    • How much are the proceeds from the sale of plant assets?
  • Acquisition and Sales of Plant Assets
    • Book value + Gain or – Loss = Proceeds
    • $54,000 + $8,000 = $62,000
    • How do we determine acquisitions?
    • Beginning net balance + Acquisitions – Depreciation – Book value of assets sold = Ending balance
  • Computing the Cash Amounts of Financing Activities
    • Financing activities affect liability and stockholders’ equity accounts.
    • Notes Payable
    • Bonds Payable
    • Long-Term Debt
    • Common Stock
    • Paid-in Capital
    • Retained Earnings
  • Issuance and Payments of Long-Term Notes Payable
    • Beginning balance was $77,000.
    • New debt amounting to $94,000 was incurred during the year.
    • The ending balance for the Long-Term Notes Payable account was $160,000.
    • How much was the payment?
    • $11,000
  • Computing Dividend Payments
    • Dividend payments are computed by analyzing the Dividends Payable account.
    • Beginning balance + Dividends declared – Dividend payments = Ending balance
  • Noncash Investing and Financing Activities...
    • are not reported in the statement of cash flows.
    • The FASB requires that significant non-cash investing and financing activities be shown in a separate schedule at the bottom of the statement.