4.04 Statement of Cash Flows

Apply procedures for preparing corporate financial statements.

A. Heading Section1. Write the name of the company.2. Write the name of the statement.3. Write the date.

Statement of Cash Flows

B. Cash Flows from Operating Activities

Statement of Cash Flows

Operating ActivitiesCash Inflows (sources of cash)Cash Sales of MerchandiseCash Sales of ServicesInterest IncomeDividends ReceivedCash Received from Charge Customers Cash Outflows (uses of cash)AdvertisingCredit Card FeesInsurance ExpenseInterest PaymentsPayroll ExpensesProperty TaxesUtility ExpensesIncome Tax

B. Steps in Reporting Cash Flows from Operating Activities1. Enter the net income as shown on the

comparative income statement.2. Add the amount of depreciation expense

to net income.3. Analyze the changes in current assets.4. Analyze the changes in current liabilities.5. Determine the cash provided by operating

activities (cash increases) or the cash used by operating activities (cash decreases).

Statement of Cash Flows

C. Cash Flows from Investing Activities

Statement of Cash Flows

Investing ActivitiesCash Inflows (sources of cash)Sale of Property

Sale of Equipment

Sale of Building

Collections of Long-term Loans

 

Cash Outflows (uses of cash)Purchase of Land

Purchase of Equipment

Purchase of Building

Purchase of Patents or Special Licenses

Loans to Other Companies

Purchase of Stock in Other Companies

Purchase of Bonds in Other Companies

C. Steps in Reporting Cash Flows from Investing Activities1. Analyze changes in long-term assets.

(plant assets)2. Determine the cash provided by

investing activities (if cash increases) or the cash used by investing activities (if cash decreases).

Statement of Cash Flows

D. Cash Flows from Financing Activities

Statement of Cash Flows

Financing Activities

Cash Inflows (sources of cash)

Capital Stock Issue

Mortgage Issue

Bond Issue

Long-Term Loans

 

Cash Outflows (uses of cash)

Purchase of Treasury Stock

Payment of Cash Dividends

Repayment of Loan/Note Principal

Retirement of Bond Principal

D. Steps in Reporting Cash Flows from Financing Activities

1. Analyze changes in long-term liabilities.2. Analyze changes in cash identified on

the statement of stockholders’ equity.3. Determine the cash provided by

financing activities (if cash increases) or the cash used by investing activities (if cash decreases).

Statement of Cash Flows

D. Steps in Completing the Statement of Cash Flows1. Compute the net increase or decrease in Cash

resulting from operating, investing, and financing activities.

2. Identify the beginning cash balance from the comparative balance sheet. The beginning cash balance for the current year is the ending cash balance from the prior year.

3. Compute the ending cash balance.4. Verify that the Cash Balance, End of Period

matches the cash balance shown on the comparative balance sheet.

Statement of Cash Flows