Chapter 12 Statement of Cash Flows Classifications of the Statement of Cash Flows Operating Activities Investing Activities Financing Activities Cash inflows and outflows directly related to earnings from normal operations Cash inflows and outflows related to the acquisition or sale of productive facilities and investments in the securities of other companies Cash inflows and outflows related to external sources of financing owners and creditors for the enterprise Operating Activities Investing Activities Financing Activities Cash Inflows Cash received from revenues Sale of operational assets Sale of investments Collections of loans Issuance of stock Issuance of bonds and notes Cash Outflows Cash paid for expenses Purchase of operational assets Purchase of investments Loans to others Payment of dividends Repurchase of stock Repayment of debt Cash Flows from Operating Activities Inflows Cash received from Customers Dividends and interest on investments Outflows Cash paid for Purchase of goods for resale and services electricity etc Salaries and wages Income taxes Interest on liabilities Cash Flows from Investing Activities Inflows Cash received from Sale or disposal of property plant and equipment Sale or maturity of investments in securities Outflows Cash paid for Purchase of property plant and equipment Purchase of investments in securities Cash Flows from Financing Activities Inflows Cash received from Borrowings on notes mortgages bonds etc from creditors Issuing stock to owners Outflows Cash paid for Repayment of principal to creditors excluding interest which is an operating activity Repurchasing stock from owners Dividends to owners Direct Method vs Indirect Method Direct Method Reports the cash effects of each operating activity Indirect Method Starts with accrual net income and converts to cash basis Note that no matter which format is used the same amount of net cash flows from operating activities is generated Cash Flows from Operations Illustration A firm has net sales of 6 000 cash expenses including taxes of 2 800 and depreciation of 1000 If accounts receivable increase over the period by 800 what were the cash flows from operations Income Statement Net sales Expenses Depreciation Net income 6 000 2 800 1 000 2 200 10 000 6 000 16 000 10 800 5 200 CFO Direct Method 5 200 2 800 0 2 400 Accounts Receivable Ending Beginning 800 0 10 800 10 000 CFO Indirect Net income 2 200 Increase in AR 800 1 000 Depreciation 2 400 RELATIONSHIPS TO THE BALANCE SHEET AND THE INCOME STATEMENT Information needed to prepare a statement of cash flows Comparative Balance Sheets Income Statement Additional details concerning selected accounts D Cash D Liabilities D Stockholders Equity D Noncash Assets Assets Liabilities Stockholders Equity Three Required Disclosures 1 Reconciliation of net income to cash flow from operations 2 Noncash investing and financing activities 3 Cash paid for interest and income taxes Statement of Cash Flows Statement of Cash Flows NCFO NCFI NCFF Cash Ending Cash Balance Beginning Cash Balance Asset Liabilities Stockholders Equity Cash Noncash assets Liabilities Stockholders Equity Cash Liabilities Stockholders Equity Noncash assets Cash Liabilities Stockholders Equity Noncash assets Statement of Cash Flows NCFO NCFI NCFF Liabilities Stockholders Equity Noncash assets Cash Balance Sheet Beginning Ending Cash Balance
View Full Document
Unlocking...