Cash Flow Statement PPT

Download Cash Flow Statement PPT

Post on 19-May-2015

11.355 views

Category:

Education

0 download

Embed Size (px)

DESCRIPTION

The Cash Flow Statement translates earnings in the Income Statement into cash inflows. Explained in detail above as a part of the topic Financial accounting, is brought to you by Welingkars Distance Learning Division. For more such innovative content on management studies, join WeSchool PGDM-DLP Program: http://bit.ly/SlideshareFaccounting Join us on Facebook: http://www.facebook.com/welearnindia Follow us on Twitter: https://twitter.com/WeLearnIndia Read our latest blog at: http://welearnindia.wordpress.com Subscribe to our Slideshare Channel: http://www.slideshare.net/welingkarDLP

TRANSCRIPT

<ul><li> 1. Welingkars Distance Learning Division Financial Accounting CHAPTER-5. The Statement of Cash Flow We Learn A Continuous Learning Forum </li></ul> <p> 2. Financial Accounting The Statement of Cash Flows Chapter 05 Importance Generally Accepted Accounting Principles (GAAP) call for three principal financial statements from all firms. These are $ Balance Sheet $ Income Statement or P &amp; L Account $ Statement of Cash Flows 3. Financial Accounting The Statement of Cash Flows Chapter 05 Importance The Statement of Cash Flows - translates earnings in the Income Statement into cash inflows. 4. Financial Accounting The Statement of Cash Flows Chapter 05 Importance The Statement of Cash Flows - translates earnings in the Income Statement into cash inflows. - shows how good is the firm in realizing adequate cash from its main operating business. 5. Financial Accounting The Statement of Cash Flows Chapter 05 Importance The Statement of Cash Flows - translates earnings in the Income Statement into cash inflows. - shows how good is the firm in realizing adequate cash from its main operating business. - reveals if firm needs to look outside for other sources of finance. 6. Financial Accounting The Statement of Cash Flows Chapter 05 Importance In the Statement of Cash Flows - definition of cash includes both cash ( currency and bank account balances). AND - cash equivalents. 7. Financial Accounting The Statement of Cash Flows Chapter 05 Importance In the Statement of Cash Flows - definition of cash includes both cash AND - cash equivalents. Which are $ Short term highly liquid instruments maturing in not more than 90 days. $ Treasury Bills ( T-Bills) $ Short Term Certificates of Deposits (CDs) $ Commercial Paper (CPs) 8. Financial Accounting The Statement of Cash Flows Chapter 05 Categories The Statement of Cash Flows reports cash flows, in the following categories : - Operating activities: transactions that affect the net income 9. Financial Accounting The Statement of Cash Flows Chapter 05 Categories The Statement of Cash Flows reports cash flows, in the following categories : $ Operating Activities. Investing Activities : Transactions which affect investments in fixed assets like property, plant etc. 10. Financial Accounting The Statement of Cash Flows Chapter 05 Categories The Statement of Cash Flows reports cash flows, in the following categories : $ Operating Activities. $ Investing Activities. Financing Activities : Transactions which affect equity and debt of the business. 11. Financial Accounting The Statement of Cash Flows Chapter 05 Categories The Statement of Cash Flows reports cash flows, in the following three categories : $ Operating Activities. $ Investing Activities. $ Financing Activities. 12. Financial Accounting The Statement of Cash Flows Chapter 05 Uses The Statement of Cash Flows is used by investors and creditors to : $ Evaluate managements abilities to manage cash now and in the future. 13. Financial Accounting The Statement of Cash Flows Chapter 05 Uses The Statement of Cash Flows is used by investors and creditors to : $ Evaluate managements abilities to manage cash now and in the future. $ Assess the companys ability to pay dividends and to pay creditors. 14. Financial Accounting The Statement of Cash Flows Chapter 05 Uses The Statement of Cash Flows is used by investors and creditors to : $ Evaluate managements abilities to manage cash now and in the future. $ Assess the companys ability to pay dividends and to pay creditors. $ Convert actual net income reported on income statement to a cash basis figure. 15. Financial Accounting The Statement of Cash Flows Chapter 05 Methods The Statement of Cash Flows is prepared by using $ Direct Method. $ Indirect Method. 16. Financial Accounting The Statement of Cash Flows Chapter 05 Methods The Statement of Cash Flows is prepared by using $ Direct Method. $ Indirect Method. The vast majority of publicly traded firms use indirect method . 17. Financial Accounting The Statement of Cash Flows Chapter 05 Methods The Statement of Cash Flows is prepared by using $ Direct Method. $ Indirect Method. The only difference between the two methods is, how cash flows from operating activities are calculated. 18. Financial Accounting The Statement of Cash Flows Chapter 05 Methods The Statement of Cash Flows is prepared by using $ Direct Method. $ Indirect Method. The only difference between the two methods is, how cash flows from operating activities are calculated. Cash flows from investing and financing activities are calculated identically in both methods. 19. Financial Accounting The Statement of Cash Flows Chapter 05 Methods The Statement of Cash Flows is prepared by using $ Direct Method. $ Indirect Method. The only difference between the two methods is, how cash flows from operating activities are calculated. Cash flows from investing and financing activities are calculated identically in both methods. The net cash inflow from operating activities is the same whether statement prepared by direct or indirect method. 20. Financial Accounting The Statement of Cash Flows Chapter 05 Methods Direct Method. Converts each item on the income statement to a cash flow i.e. sales are converted to cash receipts from sales etc. 21. Financial Accounting The Statement of Cash Flows Chapter 05 Methods Indirect Method. Step # 01 Begin with Net Income as reported on the income statement. 22. Financial Accounting The Statement of Cash Flows Chapter 05 Methods Indirect Method. $ Begin with Net Income as reported on the income statement. Step # 02 Add back Depreciation, Depletion and Amortization. ( as these are non cash expenses added back to income ) 23. Financial Accounting The Statement of Cash Flows Chapter 05 Methods Indirect Method. $ Begin with Net Income as reported on the income statement. $ Add back Depreciation, Depletion and Amortization. Step # 03 Subtract gain on disposal of fixed assets. ( These are reported in investing section of the statement) 24. Financial Accounting The Statement of Cash Flows Chapter 05 Methods Indirect Method. $ Begin with Net Income as reported on the income statement. $ Add back Depreciation, Depletion and Amortization. $ Subtract gain on disposal of fixed assets. Step # 04 Add back Loss on Disposal of Fixed Assets. ( These are reported in investing section of the statement) 25. Financial Accounting The Statement of Cash Flows Chapter 05 Methods Indirect Method. $ Begin with Net Income as reported on the income statement. $ Add back Depreciation, Depletion and Amortization. $ Subtract gain on disposal of fixed assets. $ Add back Loss on disposal of fixed assets. Step # 05 Adjust for changes in current asset and current liability. 26. Financial Accounting The Statement of Cash Flows Chapter 05 Methods Indirect Method. Step # 05 Adjust for changes in current asset and current liability as under : 1. An increase in current assets is deducted from net income. 2. An increase in current liabilities is added to net income. 3. A decrease in current assets is added to net income. 4. A decrease in current liabilities is deducted from net income. 27. Financial Accounting The Statement of Cash Flows Chapter 05 Methods Indirect Method. $ Begin with Net Income as reported on the income statement. $ Add back Depreciation, Depletion and Amortization. $ Subtract gain on disposal of fixed assets. $ Add back Loss on disposal of fixed assets. $ Adjust for changes in current asset and current liability. Last Step ! Arrive at Net Cash Inflow ( or Outflow) from Operating Activities. 28. Financial Accounting The Statement of Cash Flows Chapter 05 Methods It is important to observe that the cash flow compares Balance Sheets as on two dates and determines the cash flow. It is, therefore , more convenient to plot the Balance Sheets on two dates in a vertical form. 29. Financial Accounting The Statement of Cash Flows Chapter 05 Profit &amp; Loss Account of a firm may show robust topline and bottomline, It is the Cash Flow Statement that reveals liquidity so necessary for survival and growth of an organization! </p>