Lecture financial and managerial accounting (4:e) chapter 12 wild, shaw, chiappetta

Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fourth Edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc All Chapter 12 Reporting and Analyzing Cash Flows Conceptual Learning Objectives C1: Distinguish between operating, investing, and financing activities, and describe how noncash investing and financing activities are disclosed 12-3 Analytical Learning Objectives A1: Analyze the statement of cash flows and apply the cash flow on assets total ratio 12-4 Procedural Learning Objectives P1: Prepare a statement of cash flows P2: Compute cash flows from operating activities using the indirect method P3: Determine cash flows from both investing and financing activities P4: Appendix 12A – Illustrate use of a spreadsheet to prepare a statement of cash flows (see text for details) P5: Appendix 12B – Compute cash flows from operating activities using the direct method 12-5 C1 Purpose of the Statement of Cash Flows How How does does aa company companyobtain obtainits its cash? cash? Where Where does doesaa company companyspend spend its its cash? cash? What Whatexplains explainsthe the change change in in the the cash cash balance? balance? 12-6 C1 Importance of Cash Flows How Howdid didthe the business businessfund fund its its operations? operations? Does Doesthe the business business have have sufficient sufficientcash cash to to pay payits itsdebts debtsas as they theymature? mature? Did Didthe the business business make makeany anydividend dividend payments? payments? Did Did the the business business borrow borrowany anyfunds fundsor or repay repayany anyloans? loans? 12-7 C1 Measurement of Cash Flows Cash Equivalents Cash Cash Currency   Short-term, Short-term,highly highlyliquid liquid investments investments   Readily Readilyconvertible convertible into into cash cash   Sufficiently Sufficientlyclose close to to maturity maturityso so that thatmarket marketvalue valueis is unaffected unaffected by byinterest interestrate rate changes changes 12-8 C1 Classifying Cash Flows The Statement of Cash Flows includes the following three sections: • Operating Activities • Investing Activities • Financing Activities 12-9 C1 Operating Activities Inflows Inflows •• Receipts Receiptsfrom fromcustomers customers •• Cash Cashdividends dividendsreceived received •• Interest Interestfrom fromborrowers borrowers •• Other Other Outflows Outflows •• Salaries Salariesand andwages wages •• Payments Paymentsto tosuppliers suppliers •• Taxes Taxesand andfines fines •• Interest Interestpaid paidto tolenders lenders •• Other Other 12-10 C1 Investing Activities Inflows Inflows •• Selling Sellinglong-term long-termproductive productive assets assets •• Selling Sellingequity equityinvestments investments •• Collecting Collectingprincipal principalon on loans loans •• Other Other Outflows Outflows •• Purchasing Purchasinglong-term long-term productive productiveassets assets •• Purchasing Purchasingequity equity investments investments •• Purchasing Purchasingdebt debtinvestments investments •• Other Other 12-11 C1 Financing Activities Inflows Inflows •• Issuing Issuingits itsown ownequity equity securities securities •• Issuing Issuingbonds bonds and andnotes notes •• Issuing Issuingshortshort-and andlong-term long-term liabilities liabilities Outflows Outflows •• Pay Paydividends dividends •• Purchasing Purchasingtreasury treasurystock stock •• Repaying Repayingcash cashloans loans •• Paying Payingowners’ owners’withdrawals withdrawals 12-12 C1 Format of the Statement of Cash Flows 12-13 P2 Indirect Method Example – B&G Company Add Add noncash noncashexpenses expensesand and losses losses Subtract Subtractnoncash noncashrevenues revenues and and gains gains Then, Then,analyze analyzethe thechanges changes in incurrent currentassets assetsand and current currentliabilities liabilities → → Start Start with with accrual-basis accrual-basis net net income income 12-14 P3 Indirect Method Example – B&G Company 12-15 End of Chapter 12 12-16 .. .Chapter 12 Reporting and Analyzing Cash Flows Conceptual Learning Objectives C1: Distinguish between operating, investing, and financing activities, and describe how noncash investing and. .. Salaries Salariesand andwages wages •• Payments Paymentsto tosuppliers suppliers •• Taxes Taxesand andfines fines •• Interest Interestpaid paidto tolenders lenders •• Other Other 12- 10 C1 Investing... owners’withdrawals withdrawals 12- 12 C1 Format of the Statement of Cash Flows 12- 13 P2 Indirect Method Example – B&G Company Add Add noncash noncashexpenses expensesand and losses losses Subtract