The Statement of Cash Flows pdf

The Statement of Cash Flows Chapter 17 The statement of cash flows reports the entity’s cash flows (cash receipts and cash payments) during the period. Purpose of The Statement of Cash Flows: Basic Concepts Identify the Purposes of the Statement of Cash Flows. Objective 1 Purposes of the Statement of Cash Flows Statement of Retained Earnings 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) Statement of Cash Flows Income Statement Balance Sheet Balance Sheet Purposes of the Statement of Cash Flows • The statement of cash flows is designed to fulfill the following: – 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 firm’s cash Cash Balance Includes – cash on hand. – cash in the bank. – cash equivalents. Cash Equivalents Are …short-term, highly liquid investments convertible into cash with little delay. – money market accounts. – U.S. Government Treasury bills. Distinguish Among Operating, Investing, and Financing Cash Flows. Objective 2 Basic Organization of the Statement of Cash Flows • A business may be evaluated in terms of three types of business activities: 1 Operating activities 2 Investing activities 3 Financing activities Operating Activities Operating activities are related to the transactions that make up net income. Operating activities also affect current assets and current liabilities on the balance sheet. [...]... and Sales of Plant Assets • The business had plant assets net of depreciation of $219,000 at the beginning of the year and $464,000 at year end • Further, the acquisition of plant assets amounted to $317,000 during the year Acquisition and Sales of Plant Assets • The income statement shows depreciation expense of $18,000 and a $8,000 gain on sale of plant assets • What is the book value of the assets... approved two methods for reporting cash flows from operating activities 1 Indirect method 2 Direct method Objective 3 Prepare a Statement of Cash Flows by the Indirect Method Preparing the Statement • Follow the template provided in the text • Use comparative balance sheets to determine the change in cash, current assets and current liabilities • Use the income statement to gather net income, depreciation,... Dividend revenue Gain on sale of plant assets Total revenues and gains $284 12 9 8 $313 Computing Individual Amounts for the Statement of Cash Flows Expenses: Cost of goods sold Salary expense Depreciation expense Other operating expense Interest expense Income tax expense Total expenses $150 56 18 17 16 15 $272 Computing Individual Amounts for the Statement of Cash Flows Income Statement Year Ended December... 24 $487 $238 The Indirect Method Statement of Cash Flows (Indirect Method) Year Ended December 31, 2005 (Thousands) Cash flows from operating activities: Net Income $41 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 18 Gain on sale of plant 8 Increase in accounts receivable (15) Decrease in inventory 2 The Indirect Method Statement of Cash Flows (Indirect... increase and decrease the assets that are available to the business Investing activities are related to the Long-Term Asset accounts 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 Format of the Statement of Cash Flows • FASB Statement 95 approved... (Thousands) Net cash inflows from operating activities Net Cash outflow from investing activities Net Cash inflow from financing activities Net (decrease in cash) Cash balance, December 31, 2004 Cash balance, December 31, 2005 $ 68 (255) 167 $(20) 42 $ 22 Noncash Investing and Financing Activities …are not reported in the statement of cash flows • The FASB requires that significant noncash investing and... sales • Complete the statement of cash flows The Indirect Method Current Assets Add to Net Income if this account has decreased Deduct from Net Income if this account has increased The Indirect Method Current Liabilities Add to Net Income if this account has increased Deduct from Net Income if this account has decreased Computing Individual Amounts for the Statement of Cash Flows Income Statement Year... value of assets sold = Ending balance Computing the Cash Amounts of Financing Activities • Financing activities affect liability and stockholders’ equity accounts – Long-Term Notes Payable – Bonds Payable – Common Stock – Retained Earnings The Indirect Method Statement of Cash Flows (Indirect Method) Year Ended December 31, 2005 (Thousands) Cash flows from financing activities: Proceeds from issuance of. .. reconcile net income to net cash provided by operating activities: Increase in accounts payable 34 Decrease in accrued liabilities (4) Net cash provided by operating activities $68 The Indirect Method Statement of Cash Flows (Indirect Method) Year Ended December 31, 2005 (Thousands) Cash flows from investing activities: Acquisition of plant assets Proceeds from sale of plant assets Net cash used for investing... during the year • The ending balance for the Long-Term Notes Payable account was $160,000 • How much was the payment? • $11,000 Computing Dividend Payments • Dividend payments are computed by analyzing Retained Earnings • Beginning balance + Dividends declared – Dividend payments = Ending balance The Indirect Method Statement of Cash Flows (Indirect Method) Year Ended December 31, 2005 (Thousands) Net cash . The Statement of Cash Flows Chapter 17 The statement of cash flows reports the entity’s cash flows (cash receipts and cash payments) during the period. Purpose of The Statement of Cash Flows: . time) (a period of time) (a point in time) Statement of Cash Flows Income Statement Balance Sheet Balance Sheet Purposes of the Statement of Cash Flows • The statement of cash flows is designed. Basic Concepts Identify the Purposes of the Statement of Cash Flows. Objective 1 Purposes of the Statement of Cash Flows Statement of Retained Earnings 12/31/x1 For the Year Ended 12/31/x2