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The Statement of Cash FlowsObjective 1Basic ConceptsPurposes of the Statement of Cash FlowsWhat is Cash?Objective 2Operating, Investing, and Financing ActivitiesTwo Formats for Operating ActivitiesSlide 9Objective 3The Indirect Method: Operating ActivitiesThe Indirect Method: Investing ActivitiesThe Indirect Method: Financing ActivitiesComparative Balance SheetsSlide 15Income StatementSlide 17Slide 18Statement of Cash Flows: Operating ActivitiesStatement of Cash Flows: Operating ActivitiesChanges in Current Asset and Current Liability Accounts – CStatement of Cash Flows: Investing ActivitiesStatement of Cash Flows: Financing ActivitiesStatement of Cash FlowsComputing Acquisition and Sales of Plant AssetsSlide 26Slide 27Slide 28Slide 29Computing Acquisition and Sales of InvestmentsComputing Loans and Their CollectionsComputing Issuances and Payments of Long-Term DebtSlide 33Computing Issuances of Stock: Purchases of Treasury StockComputing Dividend PaymentsNoncash Investing and Financing ActivitiesSlide 37Learning Objective 4The Direct MethodSlide 40Slide 41Slide 42Cash Flows from Operating ActivitiesCash Flows from Investing ActivitiesCash Flows from Financing ActivitiesComputing Cash Collections from CustomersComputing Payments to SuppliersSlide 48Slide 49Computing Payments for Operating ExpensesComputing Payments to EmployeesMeasuring Cash Adequacy: Free Cash FlowSlide 531©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/HorngrenThe Statement of Cash FlowsChapter 122©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/HorngrenObjective 1Identify the purposes of the statement of cash flows.3©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/HorngrenReports the entity’s cash flows (cash receipts and cash payments) during the periodBasic Concepts4©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/HorngrenPurposes of the Statementof Cash Flows1. Predict future cash flows2. Evaluate management decisions3. Determine the ability to pay dividends to stockholders’ and payments to creditors4. Show the relationship of net income to the business’s cash flows5©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/HorngrenWhat is Cash?Cash on handCash in the bankCash equivalents - highly liquid, short-term investments that can be converted into cash with little delayMoney-market investmentsU.S. Government Treasury bills6©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/HorngrenObjective 2Distinguish among operating, investing, and financing cash flows.7©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/HorngrenOperating, Investing, and Financing ActivitiesOperating activities create revenues, expenses, gains, and losses.Investing activities increase and decrease long-term assets.Financing activities obtain cash from investors and creditors.8©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/HorngrenTwo Formats forOperating ActivitiesIndirect method reconciles from net income to net cash provided by operating activitiesDirect method reports all cash receipts and cash payments from operating activitiesThe two methods have no effect on investing or financing activities.Two Formats forOperating ActivitiesIndirect MethodNet income $XXXAdjustments:Depreciation, etc. XXXNet income provided by operating activities $XXXDirect MethodCollection from customers $XXXDeductions:Payment to suppliers, etc. XXXNet income provided by operating activities $XXX©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren10©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/HorngrenObjective 3Prepare a statement of cash flows by the indirect method.11©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/HorngrenThe Indirect Method:Operating ActivitiesPositive ItemsNet incomeDepreciation/amortizationLoss on sale of long-term assetsDecreases in current assets other than cashIncreases in current liabilitiesNegative ItemsNet lossGain on sale of long-term assetsIncreases in current assets other than cashDecreases in current liabilities12©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/HorngrenThe Indirect Method:Investing ActivitiesPositive ItemsSale of plant assetsSale of investments that are not cash equivalentsCollections of loans receivableNegative ItemsAcquisition of plant assetsPurchase of investments that are not cash equivalentsMaking loans to others13©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/HorngrenThe Indirect Method:Financing ActivitiesPositive ItemsIssuing stockSelling treasury stockBorrowing moneyNegative ItemsPayment of dividendsPurchase of treasury stockPayment of principal amounts of debts14©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/HorngrenComparative Balance SheetsAssetsCurrent: Cash Accounts receivable Interest receivable Inventory Prepaid expensesLong-term receivablePlant assets, net Total$ 22 93 3 135 8 11 453$725$ 42 80 1 138 7 – 219$487$ (20) 13 2 (3) 1 11 234$238(In thousands) 20x2 20x1 Inc/dec)Anchor Corporation – December 3115©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/HorngrenComparative Balance SheetsLiabilitiesCurrent: Accounts payable Salary payable Accrued liabilitiesLong-term debtStockholders’ equityCommon stockRetained earnings Total$ 91 34 1 160 359 110$725$ 5763 77 258 86$487$ 34 (2) (2) 83 101 24$238(In thousands) 20x2 20x1 Inc/dec)Anchor Corporation – December 3116©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/HorngrenIncome StatementRevenues and gains:Sales revenue $284Interest revenue 12Dividend revenue 9Gain on sale of plant assets 8Total revenues and gains $313Anchor CorporationYear Ended December 31, 20x2 (In thousands)17©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/HorngrenExpenses:Cost of goods sold $150Salary and wage expense 56Depreciation expense 18Other operating expense 17Interest expense 16Income tax expense 15Total expenses $272Income StatementAnchor CorporationYear Ended December 31, 20x2 (In thousands)18©2006 Prentice Hall Business Publishing Financial Accounting, 6/e


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