Hospitality Industry Managerial Accounting

1
Hospitality Industry Managerial Accounting

• HRT 374
• Chapter 4
• Don St. Hilaire

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Ch. 4 Statement of Cash Flows

• Explain the purposes of SCF (Statement of Cash
  Flows)
• Shows the effects on cash of operating, investing
  and financing activities.
• Includes cash and cash equivalents.
• Provides relevant information regarding cash
  receipts and disbursements.

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Ch. 4 Statement of Cash Flows

• Explain the purposes of SCF (Statement of Cash
  Flows)cont.
• Management uses the SCF to assess
• Companys ability to generate positive future
  cash flows.
• Companys ability to meet its obligations.
• The difference between the companys net income
  and cash receipts and disbursements.
• The effect of both cash and non-cash investing
  and financing during the accounting period.

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Ch.4. Statement of Cash Flows

• Identify the classification of cash flows as
  reported on the SCF.
• Cash inflows and outflows in (Sources and Uses)
• Operating cash transactions related to revenues
  (cash inflows) and expenses (cash outflows)
• Investing cash flows from the acquisition and
  disposal of all noncurrent assets also include
  cash flows from purchase and disposal of
  marketable securities.

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Ch. 4 Identify the classification of cash flows

• Cash inflows and outflows in continued
• Financing cash flows from the issuance and
  retirement of debt and the issuance and
  re-purchase of capital stock. State how non-cash
  investing and financing activities are handled in
  relation to the SCF
• See Exhibit 2 on page 144 of the text

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Ch. 4 Statement of Cash Flows

• State how non-cash investing and financing
  activities are handled in relation to the SCF.
• Represents an exchange no cash transaction has
  occurred.
• Affects investing and financing activities
• Schedule of Noncash Investing and Financing
  Transactions.
• See Exhibit 3 on page 145 of the text

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Ch. 4 Statement of Cash Flows

• Explain the direct and indirect methods of
  converting accrual income to net cash flows from
  operations.
• Cash flow may not correlate with accrual-basis
  income statement.
• Direct method.
• Cash receipts from sales.
• Cash disbursements for expenses.
• Ignores expenses not involving direct cash
  disbursement.

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Ch. 4 Statement of Cash Flows

• Explain the direct and indirect methods of
  converting accrual income to net cash flows from
  operations. continued
• Cash flow may not correlate with accrual-basis
  income statement. continued
• Indirect method.
• Adjusts net income for non-cash items.
• Both methods produce the same figure for Cash
  flow from operating activities.
• Indirect method is more commonly used.

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Ch. 4 Statement of Cash Flows

• Describe the 4 step approach to preparing the
  SCF.
• Determine net cash flows from Operating
  activities.
• Determine net cash flows from Investing
  activities.
• Determine net cash flows from Financing
  activities.
• Present the cash flows by activity on the SCF.

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Ch. 4 Statement of Cash Flows

• State the general rules for accounting for
  changes in current accounts when determining net
  cash flows from Operating activities.
• Add decreases in current assets.
• Deduct increases in current assets.
• Deduct decreases in current liabilities.
• Add increases in current liabilities.

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Ch. 4 Statement of Cash Flows

• Identify the issues involved in the analysis of
  statements of cash flows.
• SCF not analyzed by itself.
• Management tends to focus on operations and
  resources.
• SCF relatively new.

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Ch. 4 Statement of Cash Flows

• Identify the issues involved in the analysis of
  statements of cash flows. Cont.
• Common-sized SCF may be useless.
• Comparing changes in net cash flow by activity.
• More useful analysis comparing changes in net
  cash flow by activity.