Chapter 12 Statement of Cash Flows Part 1 Accounting 215 Winter 2026 Steph Grant 1 2 Plan for Today Review of last class In the News 1 Salesforce climbs on earnings beat as company commits 50 billion for buybacks How will Salesforce s Assets and Equity change as a result of the buyback 2 Netflix announces 10 for 1 stock split as company aims to make stock more accessible for employees What journal entry will Netflix make for the stock split Netflix s stock has a par value of 0 001 before the split What will it be after the split Today we will learn 1 Classify cash inflow outflow items as operating investing or financing 2 Create the operating section of the SOCF 3 Monday Create the investing and financing sections of the SOCF In the News In the News 3 4 Salesforce shares climbed Thursday after the customer service software maker reported healthy results although its fiscal 2027 revenue view trailed Wall Street projections Here s how the company did in comparison with LSEG consensus Earnings per share 3 81 adjusted vs 3 04 expected Revenue 11 20 billion vs 11 18 billion expected The company has allocated 50 billion for new share buybacks because these are some low prices CEO Marc Benioff said on a conference call with analysts As of Wednesday s close Salesforce shares had fallen about 28 so far in 2026 while the S P 500 index had gained 1 1 How will Salesforce s Assets and Equity change as a result of the buyback a k a share repurchase Netflix NFLX on Thursday announced it will split its stock 10 for 1 meaning Netflix shareholders will receive 10 shares for every one share of the company they currently own Netflix stock as a result will trade at one tenth of its current price Shares closed at 1 089 apiece on Thursday In a statement the company said the move was being made to reset the market price of the Company s common stock to a range that will be more accessible to employees who participate in the Company s stock option program The company said its stock will begin trading on a split adjusted basis on Nov 17 If the stock were to be split right now for instance it would trade around 110 per share 1 What journal entry will Netflix make for the stock split 2 Netflix s stock has a par value of 0 001 before the split What will it be after the split What is The Statement of Cash Flows Shows the sources and uses of cash both cash cash equivalents over a period of time What is a Cash Equivalent Short term highly liquid investments Readily convertible into known fixed amounts of cash So near maturity that there is insignificant risk of market value fluctuation from interest rate changes Generally investments with original maturities of three months or less qualify under this definition i e money market funds treasury bills We classify all highly liquid instruments with an original maturity of three months or less as cash equivalents What are the Categories of Cash Flows Total cash amount on balance sheet True or False Net Income will always equal the operating section of the Statement of Cash Flows Operating C F Cash flows directly related to earning income Investing C F Cash flows from purchase or sale of 1 property plant and equipment and 2 investments Financing C F Cash flows from investors and creditors 5 6 Statement of Cash Flows Reports sources and uses of cash over a period of time broken into three categories Operating CF Investing CF Financing CF Change in CF Directly related to earning income Examples Employee salaries Payments from customers Paying bills from suppliers Related to the acquisition or sale of the company s property plant and equipment and investments Examples Buy land for a factory Buy manufacturing equipment Related to the financing of the company Examples Borrow money from the bank Pay dividends to shareholders How did cash on the Balance Sheet change from last FYE to current FYE Lowe s Statement of Cash Flows and Balance Sheet 7 8 Prepare a SCF from a B S and I S The Intuition Assets Liabilities Stockholders Equity Cash Non Cash Assets Cash Liabilities Stockholders Equity Noncash Assets So we can explain the change in cash by explaining the change in everything else Cash Liabilities Stockholders Equity Noncash Assets Step 0 Prep Work Prepare the following Balance Sheet You need two years of data Calculate the change in each balance sheet account as the difference between this year s ending balance and this year s beginning balance i e last year s ending balance Income Statement Additional details 9 10 Step 1 Operating Investing Financing Step 1 Classify balance sheet items as operating investing or financing Most current assets and current liabilities will not include assets or liabilities related to investments or amounts owed to investors Assets that aren t included in operating noncurrent assets like PP E and Investments Remaining liabilities like notes payable and equity accounts Cash dividends paid 11 12 Tip This is Generally the Case Assets Current Assets except cash Operating Investing Long term Assets Liabilities Current Liabilities Long term Liabilities Operating Financing Shareholders Equity Financing Step 1 December 31 December 31 2025 2024 13 14 You Try Classify which section you would see the following in Operating Investing or Financing 1 Cash dividends declared and paid 2 Purchase of equipment 3 Proceeds from common stock issued 4 Proceeds from sale of equipment 5 Accounts receivable increase 6 Depreciation expense Step 2 Step 2 Prepare the Operating Section This is the most challenging part Two methods Direct Method Cash received cash paid net cash from operating activities Indirect Method Start with net income then adjust for non cash items Reconciliation Most U S companies use this approach These methods are simply alternative ways to arrive at the same number Direct Method We will not cover the implementation of the direct method Inflows Cash received from Customers Dividends and interest on investments Outflows Cash paid for Purchase of services electricity etc and goods for resale Salaries and wages Income taxes Interest on liabilities 15 16 Indirect Method Start with net income then eliminate noncash items Adjust for the differences in the timing of accrual basis net income and cash flows Net Income Adjustments to reconcile net income to cash flow from operating activities Depreciation and amortization expense Gain on sale of investing assets Loss on sale of investing assets Decreases in operating assets Increases in operating assets