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Chap013

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  • Chapter 13: Statement of Cash Flows
  • The Statement of Cash Flows helps users determine how a company obtains its cash and where the cash is spent. Providing this information helps explain changes in the cash balance from the beginning to the end of the period.
    While it is important for users to know how much cash a company has, it is also important to know how a company funded it operations. Did it have to borrow money or sell stock to help pay the operating expenses? If so, users need to be aware of this so they can fully assess the cash flow position of the company.
    Cash flow information is also useful in determining whether a business has sufficient cash to pay its debts, and/or if the business paid dividends during the period.
  • This slide shows a summary of the components of a Statement of Cash Flows. There are three main sections on the statement: operating, investing, and financing activities. The bottom of the statement reconciles the change in cash with the beginning and ending cash balances. The ending cash balance on the Statement of Cash Flows should always equal the cash balance on the Balance Sheet.
  • The next few slides will discuss each of the operating, investing, and financing activities sections.
  • The Operating Activities section includes cash inflows and outflows that result from the operations of the business, and some incidental business transactions. Operating cash inflows include cash received from customers in payment of goods sold as well as cash received as dividends and interest. Operating cash outflows include cash payments for salaries, supplies, inventory, taxes, and interest.
  • The Investing Activities section includes cash inflows and outflows that result from the sale and purchase of fixed assets and investments. If a company purchases a piece of equipment, it is classified as a cash outflow in the investing section. If a company has excess cash and invests it in the stock of another company, it is also classified as a cash outflow in the investing section. If this equity investment is sold in the future, it will be classified as a cash inflow in the investing section.
  • The Financing Activities section includes cash inflows and outflows that result from transactions with the company’s creditors and stockholders. If a company borrows money from a bank, it is classified as a cash inflow in the financing section. If this debt is repaid in the future, the amount of the principal payment is classified as a cash outflow in the financing section. Remember, the interest payment is classified as a cash outflow in the operating section. If a company issues stock of the company, it is classified as a cash inflow in the financing section.
  • Cash includes currency and cash equivalents. Cash equivalents are short-term, highly liquid investments easily converted into cash with very little risk of loss. An example of a cash equivalent would be a short-term Treasury Bill that is government issued, very close to maturity, and has very little risk associated with it.
  • There are two acceptable formats for preparing the Cash Flows from Operating Activities: the Direct Method, and the Indirect Method. While each method uses a different format to arrive at Net Cash Provided (or used) by Operating Activities, the end result is the same. In other words, they use a different path to arrive at the same answer.
    Let’s look at the Direct Method.
  • The Direct Method takes accrual-basis revenue and adjusts it for changes in accounts receivable to arrive at cash received from customers.
    If Accounts Receivable decreases during the year, the decrease is added to accrual basis revenue. A decrease in Accounts Receivable means that customer cash payments on account exceed customer charges on account during the period. This excess is used to adjust the accrual-based revenues reported on the income statement to report the total cash received from customers during the period.
    Similarly, if Accounts Receivable increases during the year, this increase is subtracted from revenue. An increase in Accounts Receivable means that customer charges on account exceeded customer cash payments on account during the period. This excess is used to adjust the accrual based revenues reported on the income statement to report the total cash received from customers during the period.
    Let’s look at an example.
  • Part I
    Net Sales are $900,000 and the change in Accounts Receivable during the year is a $30,000 increase. What is Cash Received from Customers?
    Part II
    By adjusting Net Sales for the increase in Accounts Receivable, Cash Received from Customers is calculated as $870,000.
  • Accrual basis revenue accounts, such as Interest Revenue and Dividends Revenue, need to be adjusted for increases or decreases in its related receivable account. These computations are very similar to the revenue example on the previous slides.
  • To determine Cash Paid for Merchandise, complete two steps: First, adjust accrual basis Cost of Goods Sold for the increase or decrease in Inventory to arrive at Purchases. Then, adjust Purchases for the increase or decrease in Accounts Payable.
    Let’s look at an example.
  • All accrual-basis expenses need to be adjusted for changes in related prepaid asset accounts and accrued liability accounts.
  • This is Martin’s balance sheet. Begin by calculating the changes in these asset accounts during the year.
  • Part I
    This is Martin’s balance sheet. Calculate the changes in these asset accounts during the year.
    Part II
    Now do the same for the liabilities and equity accounts.
  • Here is Martin’s income statement for the period.
  • We always need to gather additional information to limit any assumptions we make about the cash flows during the period. Please review the additional information gathered. Now, let’s start on the statement of cash flows.
  • On the previous slides, we worked through calculations for Cash Received from Customers and Cash Paid to Employees. They are shown here. If necessary, review the previous slides that pertain to these computations.
  • Next, calculate Cash Paid for Inventory and Cash Paid for Interest.
  • Then, calculate Cash Paid for Taxes. Also listed are some other operating cash flow items that pertain to Martin Company. Now, let’s put together the Operating Section on the Statement of Cash Flows.
  • The operating activities section on the Statement of Cash Flows for Martin Company would look like this. Notice that all accrual-basis account balances have been converted to cash basis. Cash provided from operating activities totaled $27,370, compared to reported net income of $41,970.
  • Part I
    The completed Statement of Cash Flows is shown.
    Part II
    The Investing section includes only the cash inflow of $43,000 from the sale of equipment.
    Part III
    The Financing section includes cash from the sale of stock as well as the cash outflow of $100,000 for payment on the principal of Bonds.
    Part IV
    The Financing section also includes the cash outflow of $10,000 for payment on the principal of a Note Payable.
  • Notice that the ending Cash balance on the Statement of Cash Flows agrees with the ending Cash balance reported on the balance sheet.
  • Part I
    There are two major categories of reconciling items. They include adjustment for noncash expenses and timing differences.
    Part IIDepreciation, depletion and amortization expenses are examples of noncash expense items. They are added to net income to arrive at net cash flows from operating items.
    Part IIITiming differences include changes in asset and liability accounts such as accounts receivable, inventory, prepaid expenses, accounts payable, and accrued expenses payable.
  • The vast majority of companies use the Indirect Method, so let’s look at how to prepare the Operating section of the Statement of Cash Flows using this method. The Indirect Method starts with accrual-based net income and makes certain adjustments to arrive at Cash Flows from Operating Activities. Adjustments to accrual-based net income include adding back any noncash items that were included to arrive at net income, such as depreciation and amortization. This basically cancels out that they were originally subtracted to arrive at net income. Since these items do not represent cash outlays, they should not be included in the Statement of Cash Flows.
    Gains and losses are other items on the income statement to consider. They result from the sale of an asset. Gains are added and losses are subtracted on the income statement to arrive at net income. Since gains and losses do not represent operating cash flows, gains are canceled out by subtracting and losses are canceled out by adding to net income in the operating section.
    Appropriate adjustments should also be made on the income statement to reflect the change from accrual-based revenues reported to cash-based. This is done by analyzing the changes in noncash current assets and current liabilities.
  • This chart explains how to treat a change in a noncash current asset or current liability in the operating section of the statement of cash flows. Let’s begin with current assets.
    If Accounts Receivable, a current asset, decreases during the year, this decrease is added to net income. A decrease in Accounts Receivable means that customer cash payments on account exceeded customer charges on account during the period. This excess of payments over charges is used to adjust the accrual-based revenues reported on the income statement to report the total cash received from customers during the period. Similarly, if Accounts Receivable increased during the year, this increase would be subtracted from net income. An increase in Accounts Receivable means that customer charges on account exceeded customer cash receipts on account during the period. This excess of charges over cash receipts is used to adjust the accrual-based revenues reported on the income statement to report the total cash received from customers during the period.
    Now, let’s look at how to treat changes in current liabilities. If Salaries Payable, a current liability, decreased during the year, this decrease would be subtracted from net income. A decrease in Salaries Payable means that the company paid more in salaries than it charged during the period. This excess of cash payments over charges is used to adjust the accrual-based expense reported on the income statement to report the total cash paid for salaries during the period. Similarly, if Salaries Payable increased during the year, this increase would be added to net income. An increase in Salaries Payable means the company charged more than it paid during the period. This excess of charges over cash payments is used to adjust the accrual-based expense reported on the income statement to report the total cash paid for salaries during the period.
  • Here is a detailed list of the adjustments to net income to arrive at net cash provided or used in operating activities. Notice that the adjustment process requires us to add back any nonoperating losses and deduct any nonoperating gains included in net income. The full cash effect of the transaction resulting in the gain or loss is presented as an investing activity (for example, the sale of a building) or as a financing activity (for example, the retirement of debt) in the statement of cash flows.
  • Cash budgets are used by management to plan and forecast future cash inflows as well as determine whether there may be potential cash shortages to be managed.
  • There are several things management can do to manage cash flows, such as increase collection on accounts receivable, keep inventory low, delay payment of liabilities, plan timing of major expenditures, and invest idle cash.
  • We will use the information shown on the screen to use a worksheet to prepare the statement of cash flows on the indirect method of determining net cash provided or used in operating activities. The worksheet is a time saving approach to preparing the statement of cash flows on a routine basis.
  • Here is the supplemental information gathered from the management of Auto Supply in preparation for completing our spreadsheet.
  • Part I
    We begin our worksheet by including columns for beginning and ending balance account balance and two columns for the debit or credit change in each account. Next, we enter the first information about net income for the period. Net income increases Retained Earnings on the balance sheet, so we enter the $250,000 in the credit change column on the retained earnings row. We give it the label one to indicate it is the first information added to the worksheet. Let’s look at the impact of net income on the statement of cash flows next.
    Part II
    Net income is considered a source of cash so it is entered on our worksheet statement of cash flows in a column labeled Sources of Cash and the description Net Income is entered along with the amount.
  • Part I
    Now we have added two additional pieces of information. First we entered the cash dividends paid on the debit changes column next to Retained Earnings. Remember, dividends reduce retained earnings, so require a debit to that account. Next, we entered the depreciation expense for the period in the credit change column. Depreciation expense is a noncash charge to income and it increases the accumulated depreciation contra account. Now, let’s look at the cash flow effects of these two transactions.
    Part II
    Dividends paid are treated as a uses of cash in the financing activities section of the statement of cash flows. Depreciation is a noncash charge to income so we added the $60,000 back to net income when we make the adjustment to arrive at cash flows from operating activities. You might like to refer back to the summary of cash flows under the indirect method we presented earlier. Next, we will look at the changes in current assets and liabilities.
  • Part I
    Items 4, 5, 6, and 7 all relate to increases and decreases in current assets and current liabilities other than short-term investments. Accounts receivables increased by $10,000 during the year so we will show the change in the debit changes column next to accounts receivable. You can look at the decreases and increases highlighted next to the current asset and liability accounts. Now let’s look at the cash flow effects of these items.
    Part II
    A decrease in a current assets account is a use of cash. Accounts receivable increased during the period so more companies borrowed funds from you than paid-off the amounts owed. This has a negative impact on cash flows because we would rather collect the cash than have it owed to us. So, the increase in accounts receivable is placed in the uses of cash column. You should analyze the remain three accounts and make sure you understand why they are sources or uses of cash. Let’s complete our worksheet.
  • Part I
    All the remaining information relates to investing and financing activities. Notice the purchase of plant assets. We purchase a total of $100,000, put paid only $30,000 cash. We have two accounts involved in the transaction. First is the plant asset account that shows a debit change of $100,000, and next is the mortgage note payable account that shows a credit change of $70,000. The gain on the sale of our marketable securities is shown as an adjustment to net income in the Uses of Cash column of our worksheet. Notice that the totals row is not yet in balance because we have not enter the increase or decrease in cash for the period. Let’s look at the sources and uses of cash generated by these transactions.
    Part II
    Notice that the cash paid to acquire plant assets appears as $30,000, the net amount of the two amounts shown on the balance sheet. You can see that we have used $5,000 more cash than we generated, so we have a decreases in cash during the period of $5,000. We have one final item to post to our worksheet to put the accounts in balance. We must enter the change in cash amount. Let’s do that now.
  • Part I
    We enter the decrease in cash of $5,000 in the credit changes column next to the cash account. Now, the totals of all columns are in balance.
    Part II
    After posting the $5,000 decrease in cash amount in the sources and uses of cash columns, our formal statement of cash flows is ready to be prepared. Let’s look at it now.
  • Here is our formal statement of cash flows prepared under the indirect method. We used information from our worksheet to prepare this statement. On the next slide we will look at a schedule of supplemental information associated with the statement.
  • We are required to disclose information concerning major investing and financing activities that do not involve cash. In the case of Auto Supply Company the company financed the purchase of plant assets by issuing long-term debt. Only a small portion of the acquisition was paid with cash.
  • End of chapter 13.
  • Transcript

    • 1. Statement of Cash Flows Chapter 13 McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
    • 2. Purpose of the Statement Provides information about the cash receipts and cash payments of a business entity during the accounting period. Helps investors with questions about the company’s • • • • Ability to generate positive cash flows. Ability to meet its obligations and to pay dividends. Need for external financing. Investing and financing transactions for the period. 13-2
    • 3. 13-3
    • 4. Classification of Cash Flows • • • The Statement of Cash Flows must include the following three sections: Cash Flows from Operating Activities Cash Flows from Investing Activities Cash Flows from Financing Activities 13-4
    • 5. Operating Activities • • • • • • Inflows from: Interest and dividends received Sales to customers + Outflows to: Suppliers of merchandise and services Employees Lenders for interest Governments for taxes Cash Flows from Operating Activities _ 13-5
    • 6. Investing Activities • • • • • Inflows from: Sale of investments and plant assets Collection of principal on loans + Outflows to: Purchase investments and plant assets Purchase debt or equity investments Make loans Cash Flows from Investing Activities _ 13-6
    • 7. Financing Activities Inflows from: Inflows from: • Short-term and long-term Short-term and long-term • • • • • • • borrowing borrowing + Owners (for example, from Owners (for example, from issuing stock) issuing stock) Outflows to: Outflows to: Make payments on borrowed Make payments on borrowed funds funds Owners for dividends Owners for dividends Purchase treasury stock Purchase treasury stock Cash Flows from Financing Activities _ 13-7
    • 8. Cash and Cash Equivalents Cash Cash Equivalents • • • Currency Short-term, highly liquid investments. Readily convertible into cash. So near maturity that market value is unaffected by interest rate changes. 13-8
    • 9. The operating cash flows section can be prepared using either the direct method or the indirect method. Let’s look at the direct method for preparing the Statement of Cash Flows. 13-9
    • 10. Direct Method: Cash Received from Customers • Accrual basis revenue includes sales that did not result in cash inflows. • Can be computed as: + Decrease in Decrease in receivables receivables = Cash Cash Received from Received from Customers Customers Net Sales Net Sales – Increase in Increase in receivables receivables = 13-10
    • 11. Direct Method: Cash Received from Customers The accounts receivable balance was $80,000 on 12/31/08 and $110,000 on 12/31/09. If accrual sales revenue for 2009 was $900,000, what was cash basis revenue? Net Sales Net Sales $900,000 $900,000 – $30,000 $30,000 Increase in Increase in receivables receivables $870,000 $870,000 Cash Received Cash Received from Customers from Customers = 13-11
    • 12. Direct Method: Interest and Dividends Received 13-12
    • 13. Direct Method: Cash Paid for Purchases of Merchandise Step 1 Step 2 13-13
    • 14. Direct Method: Cash Payments for Expenses After deducting depreciation and other noncash expenses, the cash paid for expenses is affected by (1) whether the expense was prepaid, and (2) whether the expense was accrued. Cash Paid for Expenses = Expenses + Increase in prepaid expenses - Decrease in prepaid expenses + Decrease in accrued liabilities - Increase in accrued liabilities 13-14
    • 15. Direct Method Martin Co. Comparative Balance Sheets - Assets December 31, 2008 2009 Cash $ 60,000 $ 70,370 Accounts Receivable, net 27,000 35,000 Inventory 230,000 200,000 Trading Securities 25,000 Equipment, net 500,000 425,000 Investments 100,000 130,000 Total Assets $ 917,000 $ 885,370 13-15
    • 16. Direct Method Martin Co. Martin Co. Comparative Balance Sheets - Liabilities and Equity Comparative Balance Sheets - Assets December 31, December 31, 2008 2009 Accounts Payable $ 2008 15,000 $ 2009 12,000 Salaries Payable 7,000 5,000 Cash $ 60,000 $ 70,370 Interest Payable 11,950 7,350 Income TaxReceivable, net 20,000 17,000 Accounts Payable 27,000 35,000 Notes Payable, 1st Bank 70,000 60,000 Inventory 230,000 200,000 Bonds Payable 250,000 150,000 Trading Securities 25,000 Premium on Bonds Payable 5,000 4,000 Equipment, net Common Stock Investments Retained Earnings Total Assets Total Liabilities and Equity 500,000 450,000 100,000 88,050 425,000 500,000 130,000 130,020 $$917,000 $$885,370 917,000 885,370 13-16
    • 17. Direct Method Martin Co. Income Statement Amounts For the Year Ending December 31, 2009 Sales Revenues Cost of Goods Sold Depreciation Expense Interest Expense Income Tax Expense Salary Expense Other Expenses Amortization of Bond Premium Gain on Sale of Equipment Extraordinary Loss Equity in Investee Income $ 800,000 560,000 5,000 28,050 27,980 80,000 71,000 1,000 3,000 30,000 40,000 Net Income $ 41,970 13-17
    • 18. Direct Method • • • • • • • • • Additional Information Trading Securities were purchased during 2009 at a cost of $25,000. Equipment with a book value of $40,000 was sold during the year for $43,000. Equipment with a book value of $30,000 was destroyed during a freak flood in 2009. There was no insurance. Martin owns 25% of the common stock of another company and uses the equity method to account for this investment. Martin’s tax rate is 40%. The Notes Payable to the bank carry a 12% rate. The payments are due on the first day of each month. The Bonds Payable carry a 9% rate. Interest is payable semiannually on July 1 & Jan. 1. Sold stock during 2009 for $50,000. Received $10,000 dividends from its equity investment . 13-18
    • 19. Direct Method Cash Received from Customers Sales Revenues Less: Increase in A/R $ 800,000 (8,000) Cash Received from Customers $ 792,000 Cash Paid to Employees Salary Expense Add: Decrease in Salary Payable $ 80,000 2000 2,000 Cash Paid to Employees $ 82,000 13-19
    • 20. Direct Method Cash Paid for Inventory Cost of Goods Sold Add : Decrease in A/P Less: Decrease in Inventory $ 560,000 3,000 (30,000) Cash Paid for Inventory $ 533,000 Cash Paid for Interest Interest Expense Add: Decrease in Interest Payable $ 28,050 2000 4,600 Cash Paid for Interest $ 32,650 13-20
    • 21. Direct Method Cash Paid for Taxes Income Tax Expense Add: Decrease in Taxes Payable $ 27,980 2000 3,000 Cash Paid for Taxes $ 30,980 Other Operating Cash Flows 13-21
    • 22. Direct Method Cash Flows From Operating Activities Cash Received from Customers $ Cash Paid to Employees 792,000 (82,000) Cash Paid for Inventory (533,000) Cash Paid for Interest (32,650) Cash Paid for Taxes (30,980) Cash Paid to Other Sources (86,000) Cash From Operating Activities $ 27,370 13-22
    • 23. Martin Co. Equipment with a book of Cash Flows Equipment Statement value of with a book value of $40,000 was sold Ending December 31, 2009 $40,000 was sold for $43,000. For the Period for $43,000. Operating Cash Flows $ 27,370 Investing Cash Flows Bonds Payable decreased from Bonds Payable decreased from Proceeds to $150,000of Equipment $250,000 from sale during 2009. $250,000 to $150,000 during 2009. Financing Cash Flows Proceeds from sale of Stock Principal paid on Bonds Principal paid on Notes $ 50,000 (100,000) (10,000) 43,000 (60,000) Net Cash Flows for the Period Notes Payable decreased from Notes Payable decreased from $70,000 to $60,000 during 2009. $70,000 to Cash during 2009. Add: Beginning$60,000Balance $ 10,370 Ending Cash Balance $ 70,370 60,000 13-23
    • 24. Martin Co. Statement of Cash Flows For the Period Ending December 31, 2009 Notice that the Ending Cash Notice that the Ending Cash Operating Cash Flows Balance per the Statement of Balance per the Statement of Investing Cash Flows Cash Flows agrees with the Cash Flows agrees with the 12/31/09 Cash balance on the Proceeds 12/31/09 Cash balance on the from sale of Equipment Balance Sheet. Balance Sheet. Financing Cash Flows Proceeds from sale of Stock Principal paid on Bonds Principal paid on Notes Net Cash Flows for the Period Add: Beginning Cash Balance Ending Cash Balance $ 50,000 (100,000) (10,000) $ 27,370 43,000 (60,000) $ 10,370 60,000 $ 70,370 13-24
    • 25. Reconciling Net Income with Net Cash Flows There are two major categories of reconciling items. They include adjusting for: 1. Noncash Expenses. 2. Timing Differences. Accounts receivable Depreciation Expense 13-25
    • 26. Reporting Operating Cash Flows by the Indirect Method Changes in current assets and current Changes in current assets and current liabilities as shown on the following table liabilities as shown on the following table Cash Flows from Cash Flows from Operating Operating Activities Activities Net Net Income Income + Losses and + Losses and - Gains - Gains + Noncash + Noncash expenses such as expenses such as depreciation and depreciation and amortization amortization 13-26
    • 27. Reconciling Net Income with Net Cash Flows Use this table when adjusting Net Income to Operating Cash Flows. 13-27
    • 28. The Indirect Method: A Summary Net Income Add: Depreciation expense Decrease in accounts receivable Decrease in inventories Decrease in prepaid expenses Increase in accounts payable Increase in accrued expenses payable Nonoperating losses deducted in computing net income Deduct: Increase in accounts receivable Increase in inventories Increase in prepaid expenses Decrease in accounts payable Decrease in accrued expenses payable Decrease in deferred income taxes payable Nonoperating gains added in computing net income Net Cash Provided by (used in) operating activities 13-28
    • 29. Managing Cash Flows Cash Budgets are used by management to plan and forecast future cash flows. A C a s h B u d g e t c a n b e u s e d to : F o r c e m a n a g e m e n t to c o o r d in a te a c tiv itie s . P r o v id e m a n a g e r s w i t h a d v a n c e n o t i c e o f a v a il a b l e r e s o u r c e s . P r o v id e ta r g e ts u s e fu l in e v a lu a tin g p e r fo r m a n c e . P r o v id e a d v a n c e w a r n in g s o f p o te n t ia l c a s h s h o r ta g e s . 13-29
    • 30. Managing Cash Flows      Increase collection of accounts receivables. Keep inventory low. Delay payment of liabilities. Plan timing of major expenditures. Invest idle cash. 13-30
    • 31. A Worksheet for Preparing a Statement of Cash Flows AUTO SUPPLY COMPANY Comparative Balance Sheets December 31 2008 2009 Assets Cash Marketable securities Accounts receivable Inventory Plant and equipment (net of depreciation) Totals Liabilities & Stockholders' Equity Accounting payable Accured expenses payable Mortage note payable (long-term) Bonds payable (due in 2020) Capital stock (no par) Retained earnings Totals $ 50,000 40,000 320,000 240,000 600,000 $ 1,250,000 $ $ $ 150,000 60,000 500,000 160,000 380,000 $ 1,250,000 45,000 25,000 330,000 235,000 640,000 $ 1,275,000 160,000 45,000 70,000 350,000 160,000 490,000 $ 1,275,000 13-31
    • 32. A Worksheet for Preparing a Statement of Cash Flows Additional Information 1.Net income for the year amounted to $250,000. cash dividends of $140,000 were declared and paid. 2.Auto’s only noncash expense was depreciation, which totaled $60,000. 3.Marketable securities costing $15,000 were sold for $35,000 cash, resulting in a $20,000 nonoperating gain. 4.The company purchased plant assets for $100,000, making a $30,000 cash down payment and issuing a $70,000 mortgage not payable for the balance of the purchase price. 13-32
    • 33. The Worksheet AUTO SUPPLY COMPANY Worksheet for Statement of Cash Flows For the Year Ended December 31, 2009 Effects of Transactions Beginning Debit Credit Balance Changes Changes Balance sheet effects: Assets Cash Marketable securities Accounts receivable Cash effects: Inventory Plant and Operating activities: equipment (net of depreciation) Totals Net income Liabilities & Stockholders' Equity Accounting payable Accured expenses payable Mortage note payable (long-term) Bonds payable (due in 2020) Capital stock (no par) Retained earnings Totals 50,000 40,000 Sources of 320,000 Cash 240,000 600,000 1,250,000 250,000 (1) 150,000 60,000 500,000 160,000 380,000 1,250,000 Uses of Cash (1) 250,000 Ending Balance 45,000 25,000 330,000 235,000 640,000 1,275,000 160,000 45,000 70,000 350,000 160,000 490,000 1,275,000 13-33
    • 34. The WorksheetSources of Uses of AUTO SUPPLY COMPANY Cash Cash Cash effects: Operating activities: Worksheet for Statement of Cash Flows For the Year Ended December 31, 2009 Net income (1) 250,000 Effects of Transactions Depreciation expense (3) 60,000 Beginning Debit Credit Balance sheet effects: Assets Cash Marketable securities Accounts receivable Inventory Plant and equipment (net of depreciation) Investing activities: Totals Liabilities & Stockholders' Equity Accounting payable Accured expenses payable Financing activities: Mortage note payable (long-term) Dividends paid Bonds payable (due in 2020) Capital stock (no par) Retained earnings in cash Net change Totals Balance Changes 50,000 40,000 320,000 240,000 600,000 1,250,000 150,000 60,000 (2) 140,000 500,000 160,000 380,000 (2) 140,000 1,250,000 Changes (3) 60,000 (1) 250,000 Ending Balance 45,000 25,000 330,000 235,000 640,000 1,275,000 160,000 45,000 70,000 350,000 160,000 490,000 1,275,000 13-34
    • 35. The Worksheet Sources of Uses of AUTO SUPPLY COMPANY Cash effects: Cash Cash Worksheet for Statement of Cash Flows Operating activities: For the Year Ended December 31, 2009 Net income (1) 250,000 Effects of Transactions Depreciation expense (3) 60,000 Beginning Debit Credit Increase sheet effects: (4) 10,000 Changes Balance in accounts receivable Balance Changes Decrease in inventory (5) 5,000 Assets Increase in accounts payable (6) 10,000 Cash 50,000 Decreases insecuritiesexpenses (7) 40,000 15,000 Marketable accrued Accounts receivable 320,000 (4) 10,000 Inventory 240,000 (5) 5,000 Plant and equipment (net of depreciation) 600,000 (3) 60,000 Totals 1,250,000 Liabilities & Stockholders' Equity Accounting payable 150,000 (6) 10,000 Accured expenses payable 60,000 (7) 15,000 Mortage note payable (long-term) Bonds payable (due in 2020) 500,000 Capital stock (no par) 160,000 Retained earnings 380,000 (2) 140,000 (1) 250,000 Totals 1,250,000 Ending Balance 45,000 25,000 330,000 235,000 640,000 1,275,000 160,000 45,000 70,000 350,000 160,000 490,000 1,275,000 13-35
    • 36. The Worksheet AUTO SUPPLY COMPANY Cash effects: Sources of Cash Statement of Cash Flows Worksheet for Uses of Cash Operating activities: For the Year Ended December 31, 2009 Net income (1) 250,000 Effects of Transactions Depreciation expense (3) 60,000 Beginning Debit Credit Increase in accounts receivable (4) 10,000 Balance sheet effects: Balance Changes Changes Ending Balance Decrease in inventory (5) 5,000 Assets Increase in accounts payable (6) 10,000 Cash 50,000 45,000 Decreases in accrued expenses (7) 15,000 Marketable securities 40,000 (8) 15,000 25,000 Gain on sale of securities (8) 20,000 Accounts receivable 320,000 (4) 10,000 330,000 Investing activities: Inventory 240,000 (5) 5,000 235,000 Preceeds for sale of securities (8) 35,000 Plant and equipment (3) 60,000 640,000 Plant acquired for cash (net of depreciation) (9)600,000 (9) 100,000 30,000 Totals 1,250,000 1,275,000 Financing activities: Dividends paid (2) 140,000 Liabilities & Stockholders' Equity Retirement of bonds payable (10) 150,000 Accounting payable 150,000 (6) 10,000 160,000 Net decrease in cash 5,000 Accured expenses payable 60,000 (7) 15,000 45,000 Mortage note payable (long-term) (9) 70,000 70,000 Bonds payable (due in 2020) 500,000 (10) 150,000 350,000 Capital stock (no par) 160,000 160,000 Retained earnings 380,000 (2) 140,000 (1) 250,000 490,000 Totals 1,250,000 415,000 410,000 1,275,000 13-36
    • 37. The Worksheet AUTO SUPPLY COMPANY Cash effects: Sources of Cash Statement of Cash Flows Worksheet for Uses of Cash Operating activities: For the Year Ended December 31, 2009 Net income (1) 250,000 Effects of Transactions Depreciation expense (3) 60,000 Beginning Debit Credit Increase in accounts receivable (4) 10,000 Balance sheet effects: Balance Changes Changes Ending Balance Decrease in inventory (5) 5,000 Assets in accounts payable Increase (6) 10,000 Cash 50,000 (x) 5,000 45,000 Decreases in accrued expenses (7) 15,000 Marketable securities 40,000 (8) 15,000 25,000 Gain on sale of securities (8) 20,000 Accounts receivable 320,000 (4) 10,000 330,000 Investing activities: Inventoryfor sale of securities 240,000 (5) 5,000 235,000 Preceeds (8) 35,000 Plant acquired for cash (9)600,000 (9) 100,000 30,000 Plant and equipment (net of depreciation) (3) 60,000 640,000 Financing activities: Totals 1,250,000 1,275,000 Dividends paid (2) 140,000 Liabilities & Stockholders' Equity Retirement of bonds payable (10) 150,000 Accounting payable 150,000 (6) 10,000 160,000 Net decrease in cash (x) 5,000 5,000 Accured expenses payable 60,000 (7) 15,000 45,000 Mortage note payable (long-term) (9) 70,000 70,000 Bonds payable (due in 2020) 500,000 (10) 150,000 350,000 Capital stock (no par) 160,000 160,000 Retained earnings 380,000 (2) 140,000 (1) 250,000 490,000 Totals 1,250,000 415,000 415,000 1,275,000 13-37
    • 38. Statement of Cash Flows AUTO SUPPLY COMPANY Statement of Cash Flows For the Year Ended December 31, 2009 Cash flows from operating activities: Net income $ 250,000 Add: Depreciation expense 60,000 Decrease in inventory 5,000 Increase in accounts payable 10,000 Less: Increase in accounts receivable (10,000) Decrease in accrued expenses (15,000) Gain on sale of securities (20,000) Net cash provided by operating activities 280,000 Cash flows from investing activities: Proceeds from sale of securities $ 35,000 Cash paid for plant assets (30,000) Net cash provided by investing activities 5,000 Cash flows from financing activities: Dividends paid (140,000) Retirement of bonds payable (150,000) Net cash used for financing activities (290,000) Net decrease in cash (5,000) Cash and cash equivalents, January 1, 2009 50,000 Cash and cash equivalents, December 31, 2009 $ 45,000 13-38
    • 39. Supplemental Information We are required to disclose information concerning major investing and financing activities that do not involve cash. AUTO SUPPLY COMPANY Supplementary Schedule: Noncash Investing and Financing Activities Purchases of plant assets Less: Portion financed by issuance of long-term debt Cash paid to acquire plant assets $ 100,000 70,000 $ 30,000 13-39
    • 40. End of Chapter 13 13-40

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