1 Components of Statement of Cash Flows a Operating Activities Statement of Cash Flows IN cash from goods services interest dividends received i ii OUT expenses paid with cash inventory salary tax interest insurance etc b Investing Activities c Financing Activities IN sale of PPE Intangible investment principle payback loaned from us i ii OUT purchase PPE intangible investment money loaned IN selling stock borrowing money i ii OUT dividend payment repayment of principle 2 Direct Method Operating Activities a FASB preferred b Steps i Every item on income statement matched to corresponding account on balance sheet ii Draw T Acct for all balance sheet accounts 1 Not everything has cash effect depreciation expense losses gains 2 Ignored in direct method iii Add all cash paid and similar to find net cash provided by operating activities 3 Indirect Method Operating Activities a Operating Activities only b Used extensively in practice c Steps i Cancel effects of depreciation gains losses from net income 1 Add depreciation losses 2 Subtract gains ii Adjust for CAssets and CLiabilities 1 Add decreasing CA increasing CL 2 Subtract increasing CA decreasing CL 3 Excludes cash investments notes payable iii Perform calculation to find net cash provided by operating activities 4 Investing Activities 5 Financing Activities 6 Significant Noncash Activities a Sum Cash inflows and outflows to find net cash provided by investing activities a Sum Cash inflows and outflows to find net cash provided by financing activities a Not included in cash flows so include in notes required by IFRS or at bottom of statement of cash flows b Include i Common stock to purchase assets ii Conversion of bonds into common stock iii iv Exchange of long lived assets Issuance of debt to purchase asset i Interest Paid Operating Financing ii Dividend Paid Operating Financing Interest Received Operating Investing iii iv Dividend Received Operating Investing 7 IFRS Differences a SNA must be in notes b Variant Classifications 8 Healthy Flows a Operating b c Investing Financing 9 Liquidity 2 Account Receivable 1 Sales received b Sales Revenue Adjustments i Sales Returns Allowances a Realization Principle record revent when earning process is complete and there is reasonable certainty of asset being 1 Sales Reutrns dissatisfied with merchandise return get refund 2 Sales Allowance dissatisfied with merchandise get discount ii Sales Discounts discount given for paying off balance early 1 a b x y 2 a discount if paid in b days x discount if paid within y days iii all contra revenues iv Calculation Process 2 Allowance for Doubtful Accounts a ADA End of year adjustment contra asset ADA Write Offs Initial Balance Bad Debt Expense Recoveries Ending Balance b BDE expense account recorded in year sale is made estimate of write offs i 2 Methods of Estimation 1 Net Credit Sales Percentage of Sales a Credit sales per year multiplied by expected to be uncollectable b Based on historical pattern 2 Aging Method Percentage of AR a Categorize by age and assign expected to not be collected called aging schedule b Yields ADA ending balance from here calculate BDE c Write Offs money a company is no longer actively trying to collect i Actual value of BDE ii Key Ideas 1 Does not affect BDE already recorded in year of sale 2 No effect on Net Reliazable Value 3 Key Ratios 2 365 1 Goods in Transit a FOB Shipping Point Inventory i Free on Board Shipping Point ii Ownership changes as soon as products shipped b FOB Destination Point i Free on Board Destination Point ii Ownership changes when goods reach final destination c Freighting i Freight In cost of shipping inventory once owned so it can be stocked 1 Part of net purchases ii Freight Out cost of transportation of customer when seller agrees to pay 1 Expense not part of net purchases 2 Purchasing Equations 3 Inventory Cost Flow Methods a Companies may use any method so long as it is used consistently b FIFO First In First Out i Oldest inventory sold to customers c LIFO Last In Last Out i Newest inventory sold to customers d Weighted Average Assumption i Assume all inventory units have same cost 4 Financial Statements a Income Statement b Balance Sheet c Cash Flow i Record only inventory IN sales revenue i ii OUT inventory purchases operating expenses inventory tax iii Yields net cash in out flow 5 Inventory Ratios 2 365 1 Mark to Market Method a Use when ownership in company is less than 20 b 4 Events Investments i Record when acquired asset ii Record dividends from investment dividend revenue iii Adjusting entry to account for market value at end of year 1 Record unrealized gain or loss 2 Exception to historical cost concept shown at value not cost iv When sold record cash gain or loss 1 i e realized gain or loss c Realized v Unrealized i Realized only reported at sale ii Unrealized resulted form mark to market adjustment iii Both reported on income statement a Use when ownership in company is equal to or more than 20 b 4 Events i Record when acquired asset ii Dividends are recorded as decrease to investment 2 Equity Method iii Net income recorded as increase to investment 1 Investment revenue iv When sold record cash gain or loss 1 Realized gains losses only