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WUSTL ACCT 2610 - Class 24 chapter 13-Part I-2

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PowerPoint PresentationChapter 13 Statement of cash flowsBusiness BackgroundClassifications on the Statement of Cash FlowsA Comparison of the Direct and Indirect MethodsSlide 6Slide 7Cash Flows from Operating ActivitiesCash Flows from Operating Activities - Indirect MethodTo prepare a cash flow statement..Slide 11Steps in preparing a CFS using the Indirect methodRelationships to the Balance Sheet and the Income Statement (REMEMBER)Slide 14Cash Flows from Investing ActivitiesCash Flows from Financing ActivitiesQuestionsAnswerSlide 19Slide 20Slide 21Slide 22Slide 23Slide 24Comparison between ID and DSlide 26Slide 27Example1Class 24 Chapter 13Statement of cash flowsAccounting 2610Xiumin4/11/20132Chapter 13Statement of cash flowsExpectation:Know how to prepare statement of cash flow based on indirect methodUnderstand how to prepare statement of cash flow based on direct method3Business BackgroundPositive cash flows permit a company to:Pay dividend to ownersExpand its operationsTake advantage of market opportunitiesReplace assetsWall street analysts consider cash flows an important indicator of a company’s financial health4Classifications on the Statement of Cash FlowsThe Statement of Cash Flows must include the following three sections, as defined in FASB Statement 95:OperatingOperating ActivitiesInvestingInvesting ActivitiesFinancingFinancing ActivitiesThe statement could be prepared using the direct or indirect methods. The Statement of Cash Flows must include the following three sections, as defined in FASB Statement 95:OperatingOperating ActivitiesInvestingInvesting ActivitiesFinancingFinancing ActivitiesThe statement could be prepared using the direct or indirect methods.5A Comparison of the Direct and Indirect MethodsNet cash flowNet cash flow is the same for both methods. The direct method provides more detailmore detail about cash from operating activities.The investing and financing sectionsinvesting and financing sections for the two methods are identical.Net cash flowNet cash flow is the same for both methods. The direct method provides more detailmore detail about cash from operating activities.The investing and financing sectionsinvesting and financing sections for the two methods are identical.6Boston Beer uses the indirect method.Boston Beer uses the indirect method.The indirect method is used by 99% of companies.The indirect method is used by 99% of companies.Continued7This ending cash balance should agree with the balance sheet.This ending cash balance should agree with the balance sheet.8Cash Flows from Operating ActivitiesCash inflows and outflows that directly relate to income from normal operations reported on the income statement.Cash inflows and outflows that directly relate to income from normal operations reported on the income statement.9Cash Flows from Operating Activities - Indirect MethodNet IncomeNet IncomeCash Flows from Operating Activities - Indirect MethodCash Flows from Operating Activities - Indirect MethodChanges in current assets and current liabilities.Changes in current assets and current liabilities.+ Losses and - Gains+ Losses and - Gains+ Non-cash expenses such as depreciation and amortization.+ Non-cash expenses such as depreciation and amortization.The indirect method adjusts net income by eliminating non-cash items and some non-operating activities The indirect method adjusts net income by eliminating non-cash items and some non-operating activities10To prepare a cash flow statement..Net IncomeNet IncomeCash Flows from Operating Activities - Indirect MethodCash Flows from Operating Activities - Indirect MethodChanges in current assets and current liabilities.Changes in current assets and current liabilities.+ Losses and - Gains+ Losses and - Gains+ Non-cash expenses such as depreciation and amortization.+ Non-cash expenses such as depreciation and amortization.ComparativeB/SI/S11To prepare a cash flow statement.. Information needed to prepare a statement of cash flows:Comparative Balance Sheets.Comparative Balance Sheets.Income Statement.Income Statement.Additional details concerning Additional details concerning different types of transactions different types of transactions and events.and events. Information needed to prepare a statement of cash flows:Comparative Balance Sheets.Comparative Balance Sheets.Income Statement.Income Statement.Additional details concerning Additional details concerning different types of transactions different types of transactions and events.and events.12Steps in preparing a CFS using the Indirect method1. Use Net Income as a starting point.2. Adjust net income to cash flow from operations using:Non-cash expenses from operating activities that are included in net income will be cancelled (e.g. depreciations)Changes in balance-sheet items that reflect the non-cash portion of transactions from operating activities.Gains and losses from peripheral activities (e.g., redeem bonds)3. Examine other balance sheet items that may be related to investing and financing activitiesUse additional information to account for cash portion of any of these transactions13Use this table when adjusting Net Income Use this table when adjusting Net Income to Operating Cash Flows using the to Operating Cash Flows using the indirect methodindirect method..Relationships to the Balance Sheet and the Income Statement (REMEMBER)14Outflows to:Purchase goods to resell and services.Salaries & wages.Income taxes.Interest on liabilities.Outflows to:Purchase goods to resell and services.Salaries & wages.Income taxes.Interest on liabilities.Inflows from:Sales to customers.Interest received.Inflows from:Sales to customers.Interest received.Cash Flows from Operating ActivitiesCash Flows from Operating ActivitiesCash Flows from Operating Activities+_15Cash Flows from Investing ActivitiesCash Flows from Investing Activities+_ Cash Flows from Investing ActivitiesInflows from:Sale or disposal of property, plant, and equipment.Sale or maturity of investments in securities.Inflows from:Sale or disposal of property, plant, and equipment.Sale or maturity of investments in securities.Outflows to:Purchase property, plant, and equipment.Purchase investments in securities.Outflows to:Purchase property, plant, and equipment.Purchase investments in securities.16Cash Flows from Financing ActivitiesCash


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WUSTL ACCT 2610 - Class 24 chapter 13-Part I-2

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