21 - 1 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Statement of Cash Flows
Chapter 21 21 - 2 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Understanding the purpose of a statement of cash flows. Learning Objective 1 21 - 3 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 21-1 (Statement of Cash Flows: Indirect Method) What are the required financial statements? Income statement Statement of retained earnings Balance sheet Statement of cash flows 21 - 4 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater The statement of cash flows summarizes the sources and uses of cash by a company during an accounting period. Learning Unit 21-1 (Statement of Cash Flows: Indirect Method) 21 - 5 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 21-1 (Statement of Cash Flows: Indirect Method) The statement of cash flows consists of three main sections: Operating activities Investing activities Financing activities A fourth classification is called noncash investing and financing activities. 21 - 6 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Prepare the Operating Activities section of the statement of cash flows using the indirect method. Learning Objective 2 21 - 7 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 21-1 (Statement of Cash Flows: Indirect Method) Accrual net income from operating activities is adjusted to cash net income. Difference between indirect and direct method applies only to operating activities. 21 - 8 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Statement of Cash FlowIndirect Method For Year Ended December 31, 200x Net cash flows from operating activities: Net income from operations $ 9,960 Add (deduct) items to convert net income From accrual basis to cash basis: Depreciation expense 11,000 Increase in accounts receivable (4,840) Decrease in merchandise inventory 2,000 Increase in prepaid insurance (200) Increase in notes payable (short term) 2,600 Decrease in accounts payable (100) Net cash provided by operating activities $20,420 Learning Unit 21-1 (Statement of Cash Flows: Indirect Method) 21 - 9 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Current Assets Current Liabilities Add to Net Income if this account has: Decreased Increased Learning Unit 21-1 (Statement of Cash Flows: Indirect Method) Increased Decreased Deduct from Net Income if this account has: 21 - 10 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 21-1 (Statement of Cash Flows: Indirect Method) Sale or purchase of equipment Cash received from sales of stocks or bonds Cash spent to invest in other companies Sale or purchase of land Loaning cash to borrowers 21 - 11 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 21-1 (Statement of Cash Flows: Indirect Method) Issuance of long-term notes and bonds Payment of cash dividends Purchasing and reissuing treasury stock Issuance of common stock Retirement of bonds 21 - 12 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Transactions with customers, vendors, and employees are Operating Activities. Transactions involving the purchase or sale of plant assets are Investing Activities. Transactions involving creditors or stockholders are Financing Activities. Learning Unit 21-1 (Statement of Cash Flows: Indirect Method) 21 - 13 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Prepare the Operating Activities section of the statement of cash flows using the direct method. Learning Objective 3 21 - 14 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 21-2 (Statement of Cash Flows: Direct Method) The direct method determines the amount of cash inflows and cash outflows. It identifies the activities that increase or decrease cash. 21 - 15 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Statement of Cash FlowsDirect Method) For Year Ended December 31, 200x Net cash flows from operating activities: Cash received from customers $185,160 Cash paid for merchandise inventory ($101,500) Cash paid for salaries (51,040) Cash paid for insurance (7,400) Cash paid for rent (3,600) Cash paid for miscellaneous expenses (1,200) Total cash paid for operating activities (164,740) Net cash flows from operating activities $ 20,420 Learning Unit 21-2 (Statement of Cash Flows: Direct Method) 21 - 16 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Preparing a statement of cash flows. Learning Objective 4 21 - 17 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater The statement of cash flows... summarizes the changes in the sources and uses of cash. proves net increase (or decrease) in cash. Learning Unit 21-2 (Statement of Cash Flows: Direct Method) 21 - 18 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Statement of Cash Flows (Investing Activities) For Year Ended December 31, 200x Purchase of plant asset ($30,000) Net cash used by investing activities (30,000) Learning Unit 21-2 (Statement of Cash Flows: Direct Method) 21 - 19 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Statement of Cash Flows (Financing Activities) For Year Ended December 31, 200x Issuance of long-term note $ 8,000 Issuance of common stock 10,000 Payment of dividends (8,000) Net cash provided by financing activities $10,000 Learning Unit 21-2 (Statement of Cash Flows: Direct Method) 21 - 20 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Statement of Cash Flows For Year Ended December 31, 200x Net cash flow from operating activities $20,420 Net cash used by investing activities (30,000) Net cash provided by financing activities $10,000 Net increase in cash $ 420 Learning Unit 21-2 (Statement of Cash Flows: Direct Method) 21 - 21 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater End of Chapter 21