the statement of cash flows

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  • 1. The Statement of Cash Flows Chapter 17 AGRICULUTURAL TECHNICAL INSTITUTE BUS TEC T101 ACCOUNTING

2. ACCOUNTING CONCEPTS

  • CH1: ACCT & THE BUS ENVIRONMENT
  • CH2: RECORDING TRANSACTIONS
  • CH3: MEASURING INCOME; ADJUSTMENTS
  • CH4: COMPLETING THE ACCTING CYCLE
  • CH5: MERCHANDISE OPERATIONS
  • CH6: MERCHANDISE INVENTORY
  • CH7: SPECIAL JOURNALS
  • CH8: CONTROLLING CASH
  • CH9: RECEIVABLES
  • CH 10: PLANT ASSETS & INTANGIBLES
  • CH 11: CURRENT LIABILTIES & PAYROLL
  • CH 17: CASH FLOW

3. LEARNING OBJECTIVES

  • AFTER COMPLETING THIS LESSON, THE STUDENT SHOULD BEABLE TO:
  • 1.Identify the purposes of the statement of cash flows.
  • 2.Distinguish among operating, investing, and financing cash flows.
  • 3. Prepare a statement of cash flows by the indirect method.
  • 4. Prepare a statement of cash flows by the direct method.

CH17: CASH FLOW STATEMENT 4. Purpose of The Statement of Cash Flows: Basic Concepts Thestatement of cash flows reports the entitys cash flows (cash receipts and cash payments) during the period. 5. Purposes of the Statement of Cash Flows Statement of Retained Earnings 12/31/x1 For the Year Ended 12/31/x212/31/x2 (a point in time)(a period of time)(a point in time) Statement of Cash Flows Income Statement Balance Sheet Balance Sheet 6. Purposes of the Statement of Cash Flows

  • 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
  • show the relationship of net income to changes in the firms cash

7. Cash Balance Includes...

  • cash on hand.
  • cash in the bank.
  • cash equivalents.

8. Cash Equivalents Are....

  • short-term, highly liquid investments convertible into cash with little delay.
  • money market accounts.
  • U.S. Government Treasury bills.

9. Basic Organization of the Statement of Cash Flows

  • A business may be evaluated in terms of three types of business activities:
  • Operating activities
  • Investing activities
  • Financing activities

10. Operating Activities Operating activities are related to the transactions that make up net income. Interest and dividends received are related to investing activities. However, the FASB has decided to classify the cash received from these items as operating activities. 11. Investing Activities Investing activities increase and decrease the assets that are available to the business. Investing activities are related to the Long-Term Asset accounts. Examples:purchases and sales of long term assetsand loans to others and the collection of those loans 12. Financing Activities These are transactions involving obtaining resources from the owners or returningresources to them. It also involves obtaining resourcesfrom creditors and repaying the amount borrowed. Examples:issuing stock, borrowing money,paying back loans, paying dividends,buying & selling treasury stock 13. WHEN:PERIODOF TIME

  • B.OPERATINGACTIVITIES

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.FINANCINGACTIVITIES C.INVESTINGACTIVITIES 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 14.

  • 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 15. Format of the Statement of Cash Flows

  • FASB has approved two methods for reporting cash flows from operating activities.
  • Indirect method
  • Direct method

16. Format of the Statement of Cash Flows

  • 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.

17. 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.

18. Operating Receipts: Payments Received Prepare A Cash Flow Statement By Direct Method In Proper Format OBJ 3 676 B. Cash Flows FromOperatingActivities: IN Net Cash Flow FromOperatingActivities Operating Expenses: Payments made OUT Cash Sales To Vendors Interest Received For Interest Collect Receivables To Employees For Co. Taxes 0 $ 68 19. Proceeds from sale of plant assets Prepare A Cash Flow Statement By Direct Method In Proper Format OBJ 3 676 C. Cash Flows FromInvestingActivities: IN Net Cash Flow FromInvestingActivities Purchase of plant assets OUT Sale of Land Purchase of Floral Cooler Sale of Building Investment in Another Company Sale of Equip (-255) 20. Proceeds Increasing Financial Base Prepare A Cash Flow Statement By Direct Method In Proper Format OBJ 3 676 D. Cash Flows FromFinancingActivities: IN Net Cash Flow FromFinancingActivities Paying Off Debts OUT Issuing Stock Dividend Payment Borrowing Money Paying off Notes Payable Debt Repayment Adding a Partner 167 21. Prepare A Cash Flow Statement By Direct Method In Proper Format OBJ 3 676 E. Cash Flows Summary FromAllActivities: Cash Balance, December 31, 2001 42 Cash Balance, December 31, 2002 Net Change in Cash Net Cash Flow FrOperatingActivities $ 68 Net Cash Flow FrInvestingActivities (-255) 167 Net Cash Flow FrFinancingActivities $(20) $ 22 22. The Direct Method Cash flows fromoperatingactivities: Receipts: Collections from customers $271 Interest received on notes receivable 10 Dividends received on investments in stock 9 Total receipts $290 Statement of Cash Flows ( Direct Method ) Year Ended December 31, 2002 (Thousands) 23. The Direct Method Payments: To suppliers $133 To employees 58 For interest 16 For income tax 15 Total payments 222 Net cash inflows fromoperatingactivities $68 Statement of Cash Flows ( Direct Method ) Year Ended December 31, 2002 (Thousands) 24. The Direct Method Cash flows frominvestingactivities: Acquisition of plant assets $(306) Loan to another company (11) Proceeds from sale of plant assets 62 Net cash outflow from investingactivities $(255) Statement of Cash Flows ( Direct Method ) Year Ended December 31, 2002 (Thousands) 25. The Direct Method Cash flows fromfinancingactivities: Proceeds from issuance of common stock $101 Proceeds from issuance of long-term notes payable 94 Payment of long-term notes payable (11) Payment of dividends (17) Net cash inflow fromfinancingactivities $167 Statement of Cash Flows ( Direct Method ) Year Ended December 31, 2002 (Thousands) 26. The Direct Method Net cash inflows fromoperatingactivities $68 Net Cash outflow frominvestingactivities(255) Net Cash inflow fromfinancingactivities167 Net (decrease in cash) $(20) Cash balance, December 31, 2001 42 Cash balance, December 31, 2002 $ 22 Statement of Cash Flows ( Direct Method ) Year Ended December 31, 2002 (Thousands) 27. Chapter 17 Recap

  • Statement of Cash Flows
    • 3 business activities
      • Operating
      • Investing
      • Financing
    • 2 methods to calculate cash flows from Operating Activities
      • Indirect
      • Direct