Slide 1Slide 2Purpose of the Statement of Cash FlowsImportance of Cash FlowsUsefulness of the Statement of Cash FlowsMeasurement of Cash FlowsClassifying Cash FlowsOperating ActivitiesInvesting ActivitiesFinancing ActivitiesSignificant Non-cash ActivitiesSlide 12Preparing the SCFSlide 14Slide 15Slide 16Slide 17Analyzing the Cash AccountSlide 19Slide 20Indirect Method of Reporting Operating Cash FlowsSlide 22Indirect Method Alternative ExampleIndirect Method ExampleSlide 25Slide 26Slide 27Slide 28Slide 29Slide 30Slide 31Slide 32Slide 33Investing/Financing ActivitiesFinally…Slide 36Slide 37Slide 38Chapter 18Chapter 18The Statement of Cash FlowsAccounting 212In this chapter, we will learn to:1 Understand the usefulness of the statement of cash flows.2 Distinguish among operating, investing, and financing activities.3 Prepare a statement of cash flows using the indirect method.4 Review a sample statement of cash flows using the direct method.5 Analyze the statement of cash flows.CHAPTER 18 THE STATEMENT OF CASH FLOWSHow does a company obtain its cash?How does a company obtain its cash?Where does a company spend its cash?Where does a company spend its cash?What explains the change in the cash balance?What explains the change in the cash balance?Purpose of the Statement of Cash FlowsHow did the business fund its operations?How did the business fund its operations?Did the business borrow any funds or repay any loans?Did the business borrow any funds or repay any loans?Does the business have sufficient cash to pay its debts as they mature?Does the business have sufficient cash to pay its debts as they mature?Did the business make any dividend payments?Did the business make any dividend payments?Importance of Cash FlowsHow well can the entity generate future cash flows?How well can the entity generate future cash flows?What were cash investing and financing transactions during period?What were cash investing and financing transactions during period?Does the business have sufficient cash to pay dividends and future obligations?Does the business have sufficient cash to pay dividends and future obligations?What were the differences between net income and net cash provided (used) by operating activities?What were the differences between net income and net cash provided (used) by operating activities?Usefulness of the Statement of Cash FlowsCashCashCurrencyCash EquivalentsShort-term, highly liquid investments.Readily convertible into cash.So near maturity that market value is unaffected by interest rate changes.Short-term, highly liquid investments.Readily convertible into cash.So near maturity that market value is unaffected by interest rate changes.Measurement of Cash FlowsThe Statement of Cash Flows includes the following three sections:Operating ActivitiesInvesting ActivitiesFinancing ActivitiesClassifying Cash FlowsOutflowsSalaries and wages.Payments to suppliers.Taxes and fines.Interest paid to lenders.Other.OutflowsSalaries and wages.Payments to suppliers.Taxes and fines.Interest paid to lenders.Other.InflowsReceipts from customers.Cash dividends received.Interest from borrowers.Other.InflowsReceipts from customers.Cash dividends received.Interest from borrowers.Other.Operating ActivitiesOutflowsPurchasing long-term productive assets.Purchasing equity investments.Purchasing debt investments.Other.OutflowsPurchasing long-term productive assets.Purchasing equity investments.Purchasing debt investments.Other.InflowsSelling long-term productive assets.Selling equity investments.Collecting principal on loans.Other.InflowsSelling long-term productive assets.Selling equity investments.Collecting principal on loans.Other.Investing ActivitiesOutflowsPay dividends.Purchasing treasury stockRepaying cash loans.Paying owners’ withdrawals.OutflowsPay dividends.Purchasing treasury stockRepaying cash loans.Paying owners’ withdrawals.InflowsIssuing its own equity securities.Issuing bonds and notes.Issuing short- and long-term liabilities.InflowsIssuing its own equity securities.Issuing bonds and notes.Issuing short- and long-term liabilities.Financing ActivitiesItems requiring separate disclosure in a separate schedule include:Issuing debt to purchase assets.Converting bonds to common stock.Exchanging of plant assets.Issuing common stock to purchase assets.Items requiring separate disclosure in a separate schedule include:Issuing debt to purchase assets.Converting bonds to common stock.Exchanging of plant assets.Issuing common stock to purchase assets.Significant Non-cash ActivitiesPreparing the SCF•We look at changes in certain account balances between two points in time.•We adjust from accrual to cash method.•We do not use an adjusted trial balance to produce the SCF. Instead we use:–Comparative balance sheets–Current income statement–Additional informationC O M P A N Y N A M ES ta te m e n t o f C a s h F lo w sP e rio d C o v e r e dC a sh flo w s fr o m o p e r a t in g a c t iv it ie s (L is t o f in d iv id u a l ite m s) X X N e t c a s h p r o v id e d ( u s e d ) b y o p e r a t in g a c t iv it ie s X X XC a s h flo w s f r o m in v e s t in g a c tiv itie s (L is t o f in d iv id u a l in flo w s a n d o u t f lo w s) X X N e t c a s h p r o v id e d ( u s e d ) b y in v e s tin g a c tiv it ie s X X XC a s h flo w s f r o m f in a n c in g a c tiv it ie s (L is t o f in d iv id u a l in flo w s a n d o u t f lo w s) X X N e t c a s h p r o v id e d ( u s e d ) b y f in a n c in g a c t iv it ie s X X XN e t in c r e a s e ( d e c r e a s e ) in c a s h X X XC a s h a t b e g in n in g o f p e r io d X X XC a s h a t e n d o f p e r io d X X XN o n c a s h in v e st in g a n d f in a n c in g a c tiv itie s (L is t o f in d iv id u a l n o n c a s h t r a n s a c tio n s ) X X XThe general format of the SCFIs the 3 activities previously discussed – operating, investing, and financing – plus the significant noncash investing and financing activities.The general format of the SCFIs the 3 activities previously discussed – operating, investing, and financing – plus the significant noncash investing and financing activities.FORMAT OF STATEMENT OF CASH FLOWSUSAGE OF INDIRECT AND