Download - The Statement of Cash Flows
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The Statement of Cash Flows
© The McGraw-Hill Companies, Inc., 1999
11Part One: Financial Accounting
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• Operations
• New borrowings
• New stock issues
• Sale of property, plant, and equipment
• Sale of other noncurrent assets
Sources of Cash Slide 11-1
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• Cash dividends
• Repayment of borrowings
• Repurchase of stock
• Purchase of property, plant, and equipment
• Purchase of other noncurrent assets
Uses of Cash Slide 11-2
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• How much cash was provided by the normal, ongoing operations of the company?
• In what other ways were significant amounts of cash raised?
• Is the company investing enough in new plant and equipment to maintain or increase capacity and to replace old facilities with more efficient ones?
• Is the company reinvesting excess cash in productive assets, or is it using the cash to retire stock?
• How much cash was provided by the normal, ongoing operations of the company?
• In what other ways were significant amounts of cash raised?
• Is the company investing enough in new plant and equipment to maintain or increase capacity and to replace old facilities with more efficient ones?
• Is the company reinvesting excess cash in productive assets, or is it using the cash to retire stock?
Typical Questions Answered by the SCF Slide 11-3
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Operating activities:Transactions associated with sales revenues and cash outflows associated with the operating expenses
Investing activities:
Transactions involving acquiring and disinvesting in long-lived assets
Financing activities:Transactions involving borrowing of cash through noncurrent instruments and the issuance of equity securities
Major Categories on the SCF Slide 11-4
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Cash flows from investing activities: Acquisition of plant and equipment (500)Proceeds from disposals of plant and equipment 20 Purchase of investment securities (25)Proceeds from sales of investment securities 75
Net cash used by investing activities (430)
Cash flows from investing activities: Acquisition of plant and equipment (500)Proceeds from disposals of plant and equipment 20 Purchase of investment securities (25)Proceeds from sales of investment securities 75
Net cash used by investing activities (430)
Investing Activities Section of SCF Slide 11-5
Equipment costing $500,000 was purchased for cash during the year.
Equipment costing $500,000 was purchased for cash during the year.
Equipment that originally cost $150,000 was sold for $20,000, resulting in an inflow of cash .
Equipment that originally cost $150,000 was sold for $20,000, resulting in an inflow of cash .
Cash flows from investing activities: Acquisition of plant and equipment (500)Proceeds from disposals of plant and equipment 20 Purchase of investment securities (25)Proceeds from sales of investment securities 75
Net cash used by investing activities (430)
The net result of these two transaction on the balance sheet is an increase in plant and equipment of $350,000.
The net result of these two transaction on the balance sheet is an increase in plant and equipment of $350,000.
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Investing Activities Section of SCF Slide 11-6
Cash flows from investing activities: Acquisition of plant and equipment (500)Proceeds from disposals of plant and equipment 20 Purchase of investment securities (25)Proceeds from sales of investment securities 75
Net cash used by investing activities (430)
Investment securities decreased $50,000 ($450,000 to $400,000) during the year.
Investment securities decreased $50,000 ($450,000 to $400,000) during the year.
The firm purchased $25,000 of new securities (an inflow of cash) and and sold $75,000 of old securities (and
outflow of cash)
The firm purchased $25,000 of new securities (an inflow of cash) and and sold $75,000 of old securities (and
outflow of cash)
Cash flows from investing activities: Acquisition of plant and equipment (500)Proceeds from disposals of plant and equipment 20 Purchase of investment securities (25)Proceeds from sales of investment securities 75
Net cash used by investing activities (430)
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Financing Activities Section of SCF Slide 11-7
Short-term borrowing decreased $21,000 (from $147,000 to $126,000).
Short-term borrowing decreased $21,000 (from $147,000 to $126,000).
Cash flows from financing activities: Proceeds from short-term debt 15 Payments to settle short-term debt (36) Proceeds from long-term debt 375 Payments on long-term debt (40)Proceeds from issuing common stock 44 Dividends paid (160)
Net cash provided by financing activities 326
Cash flows from financing activities: Proceeds from short-term debt 15 Payments to settle short-term debt (36) Proceeds from long-term debt 375 Payments on long-term debt (40)Proceeds from issuing common stock 44 Dividends paid (60)
Net cash provided by financing activities 326
The firm borrowed $15,000 using short-term debt and paid $36,000 on old borrowings.
The firm borrowed $15,000 using short-term debt and paid $36,000 on old borrowings.
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Financing Activities Section of SCF Slide 11-8
Cash flows from financing activities: Proceeds from short-term debt 15 Payments to settle short-term debt (36) Proceeds from long-term debt 375 Payments on long-term debt (40)Proceeds from issuing common stock 44 Dividends paid (160)
Net cash provided by financing activities 326
Cash flows from financing activities: Proceeds from short-term debt 15 Payments to settle short-term debt (36) Proceeds from long-term debt 375 Payments on long-term debt (40)Proceeds from issuing common stock 44 Dividends paid (60)
Net cash provided by financing activities 326
Long-term debt increased $335,000 (from $500,000 in 1997 to $835,000 in 1998).
Long-term debt increased $335,000 (from $500,000 in 1997 to $835,000 in 1998).
The firm borrowed $375,000 using long-term debt and paid $40,000 on old long-term debt.
The firm borrowed $375,000 using long-term debt and paid $40,000 on old long-term debt.
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Financing Activities Section of SCF Slide 11-9
Cash flows from financing activities: Proceeds from short-term debt 15 Payments to settle short-term debt (36) Proceeds from long-term debt 375 Payments on long-term debt (40)Proceeds from issuing common stock 44 Dividends paid (160)
Net cash provided by financing activities 326
Cash flows from financing activities: Proceeds from short-term debt 15 Payments to settle short-term debt (36) Proceeds from long-term debt 375 Payments on long-term debt (40)Proceeds from issuing common stock 44 Dividends paid (60)
Net cash provided by financing activities 326
On the balance sheet, common stock increased $10,000 and paid-in capital increased by
$34,000 between 1997 and 1998.
On the balance sheet, common stock increased $10,000 and paid-in capital increased by
$34,000 between 1997 and 1998.
During 1998, Fairway issued 10,000 additional shares of $1 par value common stock resulting in
cash proceeds of $44,000.
During 1998, Fairway issued 10,000 additional shares of $1 par value common stock resulting in
cash proceeds of $44,000.
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Financing Activities Section of SCF Slide 11-10
Cash flows from financing activities: Proceeds from short-term debt 15 Payments to settle short-term debt (36) Proceeds from long-term debt 375 Payments on long-term debt (40)Proceeds from issuing common stock 44 Dividends paid (160)
Net cash provided by financing activities 326
Cash flows from financing activities: Proceeds from short-term debt 15 Payments to settle short-term debt (36) Proceeds from long-term debt 375 Payments on long-term debt (40)Proceeds from issuing common stock 44 Dividends paid (60)
Net cash provided by financing activities 326
During 1998, cash dividends amounted to $60,000.
During 1998, cash dividends amounted to $60,000.
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Net cash flow from operating activities: Cash received from customers $3,103Dividends and interest received 19
Cash provided by operating activities 3,122Cash paid to suppliers and employers 2,729Interest paid 67Income taxes paid 98
Cash disbursed for operating activities 2,894Net cash flow from operating activities 228
Operating Activities Section of SCF Slide 11-11
Direct MethodDirect MethodDirect MethodDirect Method
FASB 95 encouragesuse of the
direct method.
FASB 95 encouragesuse of the
direct method.
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Net cash flow from operating activities: Net income $200 Noncash expenses, revenues, and losses included
in income:Depreciation 120 Deferred taxes 5 Increase in accounts receivable (87)Increase in inventories (47)Increase in accounts payable 56 Increase in taxes payable 1 Gain on sale of equipment (20) Cash flow from operating activities 228
Operating Activities Section of SCF Slide 11-12
Indirect MethodIndirect MethodIndirect MethodIndirect Method
Net cash flow from operating activities: Net income $200 Noncash expenses, revenues, and losses included
in income:Depreciation 120 Deferred taxes 5 Increase in accounts receivable (87)Increase in inventories (47)Increase in accounts payable 56 Increase in taxes payable 1 Gain on sale of equipment (20) Cash flow from operating activities 228
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Operating Activities Section of SCF Slide 11-13
Depreciation Expense 120,000Accumulation Depreciation 120,000
The actual adjusting entry made:
Depreciation expense reduces net income, but has no effect on cash.
Let’s restate the entryby replacing depreciation.
Let’s restate the entryby replacing depreciation.
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Operating Activities Section of SCF Slide 11-14
Cash provided by operations 120,000Accumulation Depreciation 120,000
The restated entry:
Examine Illustration 11-6 closely. Notice that entry (3) matches the restated entry above.
Examine Illustration 11-6 closely. Notice that entry (3) matches the restated entry above.
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Net cash flow from operating activities: Net income $200 Noncash expenses, revenues, and losses included
in income:Depreciation 120 Deferred taxes 5 Increase in accounts receivable (87)Increase in inventories (47)Increase in accounts payable 56 Increase in taxes payable 1 Gain on sale of equipment (20) Cash flow from operating activities 228
Operating Activities Section of SCF Slide 11-15
Indirect MethodIndirect MethodIndirect MethodIndirect Method
Net cash flow from operating activities: Net income $200 Noncash expenses, revenues, and losses included
in income:Depreciation 120 Deferred taxes 5 Increase in accounts receivable (87)Increase in inventories (47)Increase in accounts payable 56 Increase in taxes payable 1 Gain on sale of equipment (20) Cash flow from operating activities 228
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Operating Activities Section of SCF Slide 11-16
Inventories
Beginning balance 610,000Purchases 2,337,000
Cost of sales 2,290,000Ending balance 657,000
Beginning balance in next period 657,000
Purchases = Cost of sales + (Ending Balance - Beginning Balance)
Purchases = Cost of sales + (Ending Balance - Beginning Balance)
Actual cash payments (assume all purchases were cash purchases) $2,337,000Cost of sales (based on units sold) 2,290,000Excess of cash spent over amount recorded as a cost on the income statement $ 47,000
Actual cash payments (assume all purchases were cash purchases) $2,337,000Cost of sales (based on units sold) 2,290,000Excess of cash spent over amount recorded as a cost on the income statement $ 47,000
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Net cash flow from operating activities: Net income $200 Noncash expenses, revenues, and losses included
in income:Depreciation 120 Deferred taxes 5 Increase in accounts receivable (87)Increase in inventories (47)Increase in accounts payable 56 Increase in taxes payable 1 Gain on sale of equipment (20) Cash flow from operating activities 228
Operating Activities Section of SCF Slide 11-17
Indirect MethodIndirect MethodIndirect MethodIndirect Method
Net cash flow from operating activities: Net income $200 Noncash expenses, revenues, and losses included
in income:Depreciation 120 Deferred taxes 5 Increase in accounts receivable (87)Increase in inventories (47)Increase in accounts payable 56 Increase in taxes payable 1 Gain on sale of equipment (20) Cash flow from operating activities 228
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Operating Activities Section of SCF Slide 11-18
Cash 20,000Accumulated Depreciation 150,000
Equipment, at Cost 150,000Gain on Disposal of Equipment 20,000
The journal entry made was:
Freeway Corporation sold equipment that originally cost $150,000 for $20,000. The asset was fully
depreciated at the time of sale.
Freeway Corporation sold equipment that originally cost $150,000 for $20,000. The asset was fully
depreciated at the time of sale.
This gain increasednet income by $20,000.
This gain increasednet income by $20,000.
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Operating Activities Section of SCF Slide 11-19
Cash provided by investing activities 20,000Accumulated Depreciation 150,000
Equipment, at Cost 150,000Cash provided by operating activities 20,000
The restated entry is:
The actual cash inflow should be treated as cash provided by investing activities and the gain on disposal subtracted
from net income through reducing cash provided by operations (see entry 6 in Illustration 11-6).
The actual cash inflow should be treated as cash provided by investing activities and the gain on disposal subtracted
from net income through reducing cash provided by operations (see entry 6 in Illustration 11-6).
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Operating Activities Section of SCF Slide 11-20
Suppose the equipment had a book value of $10,000 at the time of sale, and the cash proceeds totaled $15,000.
Suppose the equipment had a book value of $10,000 at the time of sale, and the cash proceeds totaled $15,000.
Cash 15,000Accumulated Depreciation 140,000
Equipment, at Cost 150,000Gain on Disposal of Equipment 5,000
The journal entry made was:
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Operating Activities Section of SCF Slide 11-20
Suppose the equipment had a book value of $10,000 at the time of sale, and the cash proceeds totaled $15,000.
Suppose the equipment had a book value of $10,000 at the time of sale, and the cash proceeds totaled $15,000.
Cash provided by investing activities 15,000Accumulated Depreciation 140,000
Equipment, at Cost 150,000Cash provided by operating activities 5,000
The entry restated is:
Cash provided by investing activities increased $15,000 and cash provided by operating activities decreased $5,000.
Cash provided by investing activities increased $15,000 and cash provided by operating activities decreased $5,000.
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Chapter 11
The End