The Statement of Cash Flows

1
The Statement of Cash Flows
AGRICULUTURAL TECHNICAL INSTITUTEBUS TEC T101
ACCOUNTING

• Chapter 17

2
ACCOUNTING CONCEPTS

• CH 1 ACCT THE BUS ENVIRONMENT
• CH 2 RECORDING TRANSACTIONS
• CH 3 MEASURING INCOME ADJUSTMENTS
• CH 4 COMPLETING THE ACCTING CYCLE
• CH 5 MERCHANDISE OPERATIONS
• CH 6 MERCHANDISE INVENTORY
• CH 7 SPECIAL JOURNALS
• CH 8 CONTROLLING CASH
• CH 9 RECEIVABLES
• CH 10 PLANT ASSETS INTANGIBLES
• CH 11 CURRENT LIABILTIES PAYROLL
• CH 17 CASH FLOW

3
LEARNING OBJECTIVES
CH 17 CASH FLOW STATEMENT

• AFTER COMPLETING THIS LESSON, THE STUDENT SHOULD
  BE ABLE TO
• 1. Identify the purposes of the statement of
  cash flows.
• 2. Distinguish among operating, investing, and
  financing cash flows.
• 3. Prepare a statement of cash flows by the
  indirect method.
• 4. Prepare a statement of cash flows by the
  direct method.

4
Purpose of The Statement ofCash Flows Basic
Concepts
The statement of cash flows reports the entitys
cash flows (cash receipts and cash
payments) during the period.
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Purposes of the Statementof Cash Flows
12/31/x1 For the Year Ended 12/31/x2
12/31/x2 (a point in time) (a
period of time) (a point in time)
Income Statement
Statement of Retained Earnings
Balance Sheet
Balance Sheet
Statement of Cash Flows
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Purposes of the Statementof Cash Flows

• The statement of cash flows is designed to
• predict future cash flows
• evaluate management decisions
• determine the ability to pay dividends plus
  interest and principal
• show the relationship of net income to changes in
  the firms cash

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Cash Balance Includes...

• cash on hand.
• cash in the bank.
• cash equivalents.

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Cash Equivalents Are....

• short-term, highly liquid investments convertible
  into cash with little delay.
• money market accounts.
• U.S. Government Treasury bills.

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Basic Organization of theStatement of Cash Flows

• A business may be evaluated in terms of three
  types of business activities
• Operating activities
• Investing activities
• Financing activities

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Operating Activities
Operating activities are related to
the transactions that make up net income.
Interest and dividends received are related to
investing activities.
However, the FASB has decided to classify
the cash received from these items as operating
activities.
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Investing Activities
Investing activities increase and decrease the
assets that are available to the business.
Investing activities are related to the Long-Term
Asset accounts.
Examples purchases and sales of long term
assets and loans to others and the collection of
those loans
12
Financing Activities
These are transactions involving
obtaining resources from the owners or returning
resources to them.
It also involves obtaining resources from
creditors and repaying the amount borrowed.
Examples issuing stock, borrowing money,
paying back loans, paying dividends, buying
selling treasury stock
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WHEN PERIOD OF TIME
Distinguish Between Operating, Investing,
Financing Cash Flows
659
2
OBJ
III. CASH FLOW FORMAT
A. HEADING
WHAT CASH FLOW STATEMENT
WHO NAME OF BUSINESS

• B. OPERATING ACTIVITIES

1. CASH FLOWING IN 2. CASH FLOWING OUT
C. INVESTING ACTIVITIES
1. CASH FLOWING IN 2. CASH FLOWING OUT
D. FINANCING ACTIVITIES
1. CASH FLOWING IN2. CASH FLOWING OUT
E. SUMMARY
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Distinguish Between Operating, Investing,
Financing Cash Flows
659
2
0
OBJ
E. CASH FLOW SUMMARY

• 1. BEGINNING CASH BALANCE

2. NET CHANGE IN CASH
3. ENDING CASH BALANCE
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Format of the Statementof Cash Flows

• FASB has approved two methods for reporting cash
  flows from operating activities.
• Indirect method
• Direct method

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Format of the Statementof Cash Flows

• The indirect method starts with net income and
  reconciles it to net cash from operating
  activities.
• The direct method lists cash receipts from
  specific operating activities and cash payments
  for each major operating activity.

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Noncash Investing andFinancing Activities...

• are not reported in the statement of cash flows.
• The FASB requires that significant non-cash
  investing and financing activities be shown in a
  separate schedule at the bottom of the statement.

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676
Prepare A Cash Flow Statement By Direct Method In
Proper Format
3
0
OBJ
B. Cash Flows From Operating Activities
IN
Operating Receipts Payments Received
Cash Sales
Collect Receivables
Interest Received
OUT
Operating Expenses Payments made
To Vendors
To Employees
For Interest
For Co. Taxes
Net Cash Flow From Operating Activities
68
19
676
Prepare A Cash Flow Statement By Direct Method In
Proper Format
3
OBJ
C. Cash Flows From Investing Activities
IN
Proceeds from sale of plant assets
Sale of Land
Sale of Equip
Sale of Building
OUT
Purchase of plant assets
Purchase of Floral Cooler
Investment in Another Company
(-255)
Net Cash Flow From Investing Activities
20
676
Prepare A Cash Flow Statement By Direct Method In
Proper Format
3
OBJ
D. Cash Flows From Financing Activities
IN
Proceeds Increasing Financial Base
Adding a Partner
Issuing Stock
Borrowing Money
OUT
Paying Off Debts
Debt Repayment
Dividend Payment
Paying off Notes Payable
167
Net Cash Flow From Financing Activities
21
676
Prepare A Cash Flow Statement By Direct Method In
Proper Format
3
OBJ
E. Cash Flows Summary From All Activities
Cash Balance, December 31, 2001
42
Net Cash Flow Fr Operating Activities
68
Net Cash Flow Fr Investing Activities
(-255)
167
Net Cash Flow Fr Financing Activities
(20)
Net Change in Cash
Cash Balance, December 31, 2002
22
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The Direct Method
Statement of Cash Flows (Direct Method) Year
Ended December 31, 2002 (Thousands)
Cash flows from operating activities Receipts Co
llections from customers 271 Interest
received on notes receivable 10 Dividends
received on investments in stock 9 Total
receipts 290
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The Direct Method
Statement of Cash Flows (Direct Method) Year
Ended December 31, 2002 (Thousands)
Payments To suppliers 133 To
employees 58 For interest
16 For income tax 15 Total
payments 222 Net cash inflows from
operating activities 68
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The Direct Method
Statement of Cash Flows (Direct Method) Year
Ended December 31, 2002 (Thousands)
Cash flows from investing activities Acquisition
of plant assets (306) Loan to another
company (11) Proceeds from sale of plant
assets 62 Net cash outflow from investing
activities (255)
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The Direct Method
Statement of Cash Flows (Direct Method) Year
Ended December 31, 2002 (Thousands)
Cash flows from financing activities Proceeds
from issuance of common stock 101 Proceeds from
issuance of long-term notes payable
94 Payment of long-term notes payable
(11) Payment of dividends (17) Net
cash inflow from financing activities 167
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The Direct Method
Statement of Cash Flows (Direct Method) Year
Ended December 31, 2002 (Thousands)
Net cash inflows from operating activities
68 Net Cash outflow from investing activities
(255) Net Cash inflow from financing activities
167 Net (decrease in cash) (20)
Cash balance, December 31, 2001 42 Cash
balance, December 31, 2002 22
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Chapter 17 Recap

• Statement of Cash Flows
• 3 business activities
• Operating
• Investing
• Financing
• 2 methods to calculate cash flows from Operating
  Activities
• Indirect
• Direct