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Financial Statements & Reports the Cash Flow Analysis entitys cash

flows cash receipts and cash payments during the period Summarizes all the transactions that affect the Cash account for a period of time

Financial Statements

Balance sheet Income statement Statement of retained earnings Statement of cash flows

Provides information about the cash receipts and cash payments of a business entity during the accounting period.
Helps investors with questions about the companys: 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.

A summary of a firms receipts and payments during a period of time. This statement reports cash inflows and outflows based on the firms operating activities activities, investing activities and activities, financing activities activities.

The cash flow statement helps to:


Predict future cash flows Evaluate management decisions Determine the companys ability to pay

dividends and debt Show the relationship of net income to cash flow

Operating Activities INFLOWS

Investing Activities

Financing Activities

OUTFLOWS Operating Activities Investing Activities Financing Activities

Revenues do not equal cash collected Net income not equal to change in cash

Expenses do not equal cash paid

There are two ways to format operating activities on the cash flow statement:
Direct method reports all cash receipts and

cash payments from operating activities Indirect method reconciles net income to net cash provided by operating activities

Both methods arrive at the same totals for cash flow Accounting Standards Board (AcSB) approved both formats, but encourages the direct method

Indirect Approach
Company Name Statement of Cash Flows Period Covered Cash flows from operating activities: [List of individual inflows and outflows] Net cash provided (used) by operating activities Cash flows from investing activities: [List of individual inflows and outflows] Net cash provided (used) by investing activities Cash flows from financing activities: [List of individual inflows and outflows] Net cash provided (used) by financing activities Net increase (decrease) in Cash

$ #####

#####

##### $ #####

##### Cash (and equivalents) balance at beginning of period $ ##### Cash (and equivalents) balance at end of period

ANCHOR CORPORATION Statement of Cash Flows Year Ended December 31, 20X2

Direct Approach
Cash flows from operating activities: Receipts: Collections from customers Interest received on notes receivable Dividends received on investments in stock Total cash receipts Payments: To suppliers To employees For interest For income tax Total cash payments Net cash inflow from operating activities: Cash flows from investing activities: Acquisitions of plant assets Loan to another company Proceeds from sale of plant assets Net cash outflow from investing activities: Cash flows from financing activities Proceeds from issuance of common stock $ 101 Proceeds from issuance of long-term debt Payment of long-term debt Payment of dividends 94 (11) (17) $ (306) (11) 62 (255) $(133) (58) (16) (15) (222) 68 $ 271 10 9 $ 290

Operating activities Result from revenues and expenses, Current Assets & Current Liabilities Investing activities Result from long-term assets Financing activities Result from stockholders equity, longterm Liabilities

Customer collections Receipts of interest and dividends on investments Other operating receipts

Payments to suppliers

Operating Activities

Payments to employees Payments of interest, income tax Other operating disbursements

Sale of plant assets Sale of investments that are not cash equivalents Receipts on loans receivable Issuing Shares Selling Preference Sharesa Borrowing money

Acquisition of plant assets

Investing Activities

Purchase of investments that are not cash equivalents Distribution of loans

Payment of dividends

Financing Activities

Payments of LT Loans Payment of principal amounts of debts

Cash Flow From Operating Activities


Direct method or indirect method (direct

requires also a reconciliation of net income to cash flow from operating activities)

Cash Flow from investing activities Cash Flow from financing activities
Total (positive or negative) cash flow is added to beginning cash balance and should result in ending cash balance

Includes:
Current assets Current Liabilities Revenue and Expenses

Includes:
long-term investments long term notes receivable Property, Plant and Equipment (depreciation

affects operating activities) Intangible Assets (LT)

Includes:
Long-term loans Share Capital and Paid in Capital in excess

of par Dividends Paid

Net Income + Depreciation exp (noncash exp) + Losses from sale of assets
(full amount of sale already included in investing section)

- Gains from sale of assets


(full amount of sale already included in investing section)

- increases in current assets + decreases in current assets + increases in current liabilities - decreases in current liabilities = Net cash from operating activities

+ Cash Received from Customers - Cash paid for inventory - Cash paid for operating expenses - Cash paid for income taxes - Cash paid for interest + Cash received from dividends and interest = Net cash from operating activities

Operating Cash Flows

Current Assets

Current Liabilities Long-Term Liabilities Owners Equity

Operating Cash Flows Financing Cash Flows

Investing Cash Flows

Long-Term Assets

Cash and cash equivalents include cash, plus temporary investments that are highly liquid (e. g., maturities of three months or less): money market accounts treasury bills Marketable Securities are often excluded. Liquid liabilities (e. g., line of credit) can be considered negative cash equivalents.

ABC Company Balance Sheet As at Dec 31, 2010 Equities & Liabilities 2010 Equity Share Capital Retained Earnings Assets 2009 Fixed Assets 250,000 200,000 Buildings 83,000 65,000 Less All for Dep 200,000 140,000 (48,000) (35,000) 152,000 105,000 Current Assets 50,000 62,000 112,000 0 Cash 56,000 120,000 65,000 30,000 2,000 25000 75,000 40,000 38,800 1,200 2010 2009

333,000 265,000 Liabilities Long Term Loan Accounts Payable

During the year 2010, Co declared and paid cash dividend of Rs 20,000 and Stock dividend of Rs 35000.

45,000 Acc Rec 45,000 Inventory Market Securities Supplies

Required: Prepare Cash flow statement for the year ended Dec 31, 2010.

273,000 180,000 Intangible Assest Good Will 20,000 25,000

445,000 310,000

445,000 310,000

ABC Company Balance Sheet As at Dec 31, 2010

Equities & Liabilities 2009 Equity Share Capital 210,000 2010 Fixed Assets 300,000 Machinery

Assets 2009 2010

110,000

140,000

During the year 2010, Co declared and paid cash dividend of Rs 45,000

Retained Earnings

30,000

40,000 Equipments

65,000

80,000

Less All for Dep

(20,000)

(30,000)

Liabilities

Current Assets

Bonds payable

75,000

0 Cash

36,000

25,500

Required: Prepare Cash flow statement for the year ended Dec 31, 2010.

Accounts Payable Accrued Expenses

58,000 20,000

50,000 Acc Rec 10,000 Stock Prepaid Insurance

45,000 150,000 7,000

40,000 135,000 9,500

393,000

400,000

393,000

400,000

2009 Acc Rec Accounts Payable Accrues expenses Bonds payable Building Cash Inventory Land Patents Prepaid Expenses Retained Earning Share capital 30,000 42,000

2010 19,000

17,000

25,000

13,000 24,000 30,000 -

15,000 40,000 100,000 10,000 20,000 8,000 ?

During the year 2010, Co declared and paid cash dividend of Rs 5,600

Required: Prepare Cash flow statement for the year ended Dec 31, 2010.

4,000

5,400

10,000 ?

22,400 96,000

2010 Acc Depreciation Acc Rec Accounts Payable Cash Equipments Inventory Mortgage Payable Retained Earning Share capital 6,100 8,500 16,800 7,000 30,100 ? 6,000 16,700 4,800 9,500

2009

19,400 ? 24,000 33,200 10,000 12,300

During the year 2010, Co declared and paid cash dividend of Rs 4,000. While they disposed off an equipments for Rs 2500 costing Rs 2,000.

30,000 25,000 0

Required: Prepare Cash flow statement for the year ended Dec 31, 2010.

Share Premium 2,500