Chapter 12 Statement of Cash Flows Part 2 Accounting 215 Winter 2026 Steph Grant 1 2 Review Statement of Cash Flows Operating C F Cash flows directly related to earning income Investing C F Cash flows from 1 purchase or sale of plants equipment and 2 investments Financing C F Cash flows from investors and creditors Total cash amount on balance sheet Steps to Prepare a Statement of Cash Flows Step 1 Classify balance sheet items as operating investing or financing Step 2 Prepare the Operating Section 3 4 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 Increases in operating liabilities Decreases in operating liabilities Net Cash Flow from Operating Activities Review Prepare the operating section of a cash flow statement Cash Inventory Prepaid expenses Furniture net Accounts payable Unearned revenue Long term debt Current Year 15 000 50 000 500 11 000 3 000 2 000 18 000 Prior Year 11 050 42 000 2 000 9 775 7 000 150 20 000 Depreciation expense was 775 for the current year New furniture was bought for 2 000 cash Net income was 12 000 for the current year Find the following net income depreciation amortization gains and losses Tips 1 Income Statement 2 Balance Sheet Classify accounts CA CL tend to be operating LTA tend to be investing LTL SE tend to be financing Calculate differences 3 Construct the operating section with indirect method Step 1 add back Depr Amort Step 2 adjust for gains and losses Step 3 adjust for changes in operating assets and operating liabilities 5 6 Step 3 Prepare the Investing Section Only direct method Separately list inflows and outflows of cash Suppose we sold old equipment for 200 and bought new equipment for 1 000 What would we do How Will This Impact the Statement of Cash Flows An apple orchard sells a tractor for 7 000 The historical cost of the tractor was 16 000 and the accumulated depreciation to date is 10 000 7 8 Step 4 Prepare the Financing Section Only direct method Separately list inflows and outflows of cash Special Considerations for Bonds Bonds Cash repayments of principal are financing activities Interest payments are cash flows from operating activities Ignore them in financing section 9 10 How Will This Impact the Statement of Cash Flows 1 Retired a discount bond early for 105 000 The carrying value of the bond is 99 000 2 Bought land for 250 000 with a note payable 3 Repurchased stock for 26 000 4 Sold equipment for 15 000 cash The net book value of the equipment was 10 000 Step 5 Final Check Step 5 Confirm changes in cash from SCF changes in cash from B S 11 12 Your To Do s Section A TODAY Monday 3 9 Main Lecture Finish Checkout Q s Review lecture notes Tuesday 3 10 Quiz Section Cover Ch 12 Wednesday 3 11 Main Lecture Final Exam Review Ch 11 HW Due 11 59 p m Final Exam is Saturday 3 14 from 8 30 10 20 AM Seating chart and room locations will be posted later this week Thursday 3 12 Quiz Section Ch 12 Part 2 and Final Exam Review Ch 12 HW Due 11 59 p m Optional Writing Assignment Due 11 59 p m Your To Do s Section B TODAY Tuesday 3 10 Main Lecture Finish Checkout Q s Review lecture notes Ch 11 HW Due 11 59 p m Wednesday 3 11 Quiz Section Cover Ch 12 Thursday 3 12 Main Lecture Final Exam Review Friday 3 13 Quiz Section Ch 12 Part 2 and Final Exam Review Ch 12 HW Due 11 59 p m Optional Writing Assignment Due 11 59 p m Final Exam is Saturday 3 14 from 8 30 10 20 AM Seating chart and room locations will be posted later this week 13 14 Ch 12 Checkout Questions 1 Fair value of shares issued in a stock dividend Payment for the early extinguishment of long term bonds book value 97 million Proceeds from the sale of treasury stock cost 17 million Gain on sale of land Proceeds from sale of land Purchase of Microsoft common stock as an investment Declaration of cash dividends Distribution of cash dividends declared in 2022 in millions 65 102 22 4 12 160 44 40 1 What were net cash inflows or outflows from investing activities for 2023 2 What were net cash inflows or outflows from financing activities for 2023 15 102 375 2 045 140 000 120 000 121 340 202 260 80 920 1 Sold securities for 74 000 cash and recognized a 4 500 gain on the sale 2 Equipment costing 20 000 with a 5 000 net book value was sold for 6 000 Recognized 1 000 gain on the sale 3 Retained earnings changed due to 50 000 net income and 20 000 cash dividends declared and paid 4 Depreciation Expense was 53 000 5 New equipment was purchased for 145 000 cash 16 17