21 - 1 © 2004 prentice hall business publishing, college accounting: a practical approach, 9e by...
TRANSCRIPT
21 - 1© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Statement of Cash FlowsStatement of Cash Flows
Chapter 21Chapter 21
21 - 2© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Understanding the purposeUnderstanding the purpose
of a statement of cash flows.of a statement of cash flows.
Learning Objective 1Learning Objective 1
21 - 3© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 21-1 (Statement Learning Unit 21-1 (Statement of Cash Flows: Indirect of Cash Flows: Indirect
Method)Method)
What are the requiredWhat are the requiredfinancial statements?financial statements?
What are the requiredWhat are the requiredfinancial statements?financial statements?
Income statementIncome statementIncome statementIncome statement
Statement of retained earningsStatement of retained earningsStatement of retained earningsStatement of retained earnings
Balance sheetBalance sheetBalance sheetBalance sheet
Statement of cash flowsStatement of cash flowsStatement of cash flowsStatement of cash flows
21 - 4© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
The statement of cash flows summarizesThe statement of cash flows summarizesthe sources and uses of cash by athe sources and uses of cash by a
company during an accounting period.company during an accounting period.
The statement of cash flows summarizesThe statement of cash flows summarizesthe sources and uses of cash by athe sources and uses of cash by a
company during an accounting period.company during an accounting period.
Learning Unit 21-1 (Statement Learning Unit 21-1 (Statement of Cash Flows: Indirect of Cash Flows: Indirect
Method)Method)
21 - 5© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 21-1 (Statement Learning Unit 21-1 (Statement of Cash Flows: Indirect of Cash Flows: Indirect
Method)Method)
The statement of cash flowsThe statement of cash flowsconsists of three main sections:consists of three main sections:The statement of cash flowsThe statement of cash flows
consists of three main sections:consists of three main sections:
Operating activitiesOperating activitiesOperating activitiesOperating activities
Investing activitiesInvesting activitiesInvesting activitiesInvesting activities
Financing activitiesFinancing activitiesFinancing activitiesFinancing activities
A fourth classification is called “noncashA fourth classification is called “noncashinvesting and financing activities.”investing and financing activities.”
A fourth classification is called “noncashA fourth classification is called “noncashinvesting and financing activities.”investing and financing activities.”
21 - 6© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Prepare the Operating ActivitiesPrepare the Operating Activities
section of the statement of cashsection of the statement of cash
flows using the indirect method.flows using the indirect method.
Learning Objective 2Learning Objective 2
21 - 7© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 21-1 (Statement Learning Unit 21-1 (Statement of Cash Flows: Indirect of Cash Flows: Indirect
Method)Method)
Accrual net income fromAccrual net income fromoperating activities isoperating activities is
adjusted to cash net income.adjusted to cash net income.
Accrual net income fromAccrual net income fromoperating activities isoperating activities is
adjusted to cash net income.adjusted to cash net income.
Difference between indirectDifference between indirectand direct method appliesand direct method appliesonly to operating activities.only to operating activities.
Difference between indirectDifference between indirectand direct method appliesand direct method appliesonly to operating activities.only to operating activities.
21 - 8© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Statement of Cash Flow—Statement of Cash Flow—IndirectIndirect MethodMethodFor Year Ended December 31, 200xFor Year Ended December 31, 200x
Net cash flows from operating activities:Net cash flows from operating activities:Net income from operationsNet income from operations $ 9,960$ 9,960Add (deduct) items to convert net incomeAdd (deduct) items to convert net incomeFrom accrual basis to cash basis:From accrual basis to cash basis:Depreciation expenseDepreciation expense 11,000 11,000Increase in accounts receivableIncrease in accounts receivable (4,840) (4,840)Decrease in merchandise inventoryDecrease in merchandise inventory 2,000 2,000Increase in prepaid insuranceIncrease in prepaid insurance (200) (200)Increase in notes payable (short term)Increase in notes payable (short term) 2,600 2,600Decrease in accounts payableDecrease in accounts payable (100) (100)Net cash provided by operating activitiesNet cash provided by operating activities $20,420$20,420
Net cash flows from operating activities:Net cash flows from operating activities:Net income from operationsNet income from operations $ 9,960$ 9,960Add (deduct) items to convert net incomeAdd (deduct) items to convert net incomeFrom accrual basis to cash basis:From accrual basis to cash basis:Depreciation expenseDepreciation expense 11,000 11,000Increase in accounts receivableIncrease in accounts receivable (4,840) (4,840)Decrease in merchandise inventoryDecrease in merchandise inventory 2,000 2,000Increase in prepaid insuranceIncrease in prepaid insurance (200) (200)Increase in notes payable (short term)Increase in notes payable (short term) 2,600 2,600Decrease in accounts payableDecrease in accounts payable (100) (100)Net cash provided by operating activitiesNet cash provided by operating activities $20,420$20,420
Learning Unit 21-1 (Statement Learning Unit 21-1 (Statement of Cash Flows: Indirect of Cash Flows: Indirect
Method)Method)
21 - 9© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Current AssetsCurrent AssetsCurrent AssetsCurrent Assets
Current LiabilitiesCurrent LiabilitiesCurrent LiabilitiesCurrent Liabilities
Add toAdd toNet IncomeNet Income
if thisif thisaccount has:account has:
DecreasedDecreasedDecreasedDecreased
IncreasedIncreasedIncreasedIncreased
Learning Unit 21-1 (Statement Learning Unit 21-1 (Statement of Cash Flows: Indirect of Cash Flows: Indirect
Method)Method)
IncreasedIncreasedIncreasedIncreased
DecreasedDecreasedDecreasedDecreased
Deduct fromDeduct fromNet IncomeNet Income
if thisif thisaccount has:account has:
21 - 10© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 21-1 (Statement Learning Unit 21-1 (Statement of Cash Flows: Indirect of Cash Flows: Indirect
Method)Method)
Sale or purchase of equipmentSale or purchase of equipmentSale or purchase of equipmentSale or purchase of equipment
Cash received from sales of stocks or bondsCash received from sales of stocks or bondsCash received from sales of stocks or bondsCash received from sales of stocks or bonds
Cash spent to invest in other companiesCash spent to invest in other companiesCash spent to invest in other companiesCash spent to invest in other companies
Sale or purchase of landSale or purchase of landSale or purchase of landSale or purchase of land
Loaning cash to borrowersLoaning cash to borrowersLoaning cash to borrowersLoaning cash to borrowers
21 - 11© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 21-1 (Statement Learning Unit 21-1 (Statement of Cash Flows: Indirect of Cash Flows: Indirect
Method)Method)
Issuance of long-term notes and bondsIssuance of long-term notes and bondsIssuance of long-term notes and bondsIssuance of long-term notes and bonds
Payment of cash dividendsPayment of cash dividendsPayment of cash dividendsPayment of cash dividends
Purchasing and reissuing treasury stockPurchasing and reissuing treasury stockPurchasing and reissuing treasury stockPurchasing and reissuing treasury stock
Issuance of common stockIssuance of common stockIssuance of common stockIssuance of common stock
Retirement of bondsRetirement of bondsRetirement of bondsRetirement of bonds
21 - 12© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Transactions with customers, vendors,Transactions with customers, vendors,and employees are and employees are Operating ActivitiesOperating Activities..Transactions with customers, vendors,Transactions with customers, vendors,
and employees are and employees are Operating ActivitiesOperating Activities..
Transactions involving the purchase orTransactions involving the purchase orsale of plant assets are sale of plant assets are Investing ActivitiesInvesting Activities..
Transactions involving the purchase orTransactions involving the purchase orsale of plant assets are sale of plant assets are Investing ActivitiesInvesting Activities..
Transactions involving creditors orTransactions involving creditors orstockholders are stockholders are Financing ActivitiesFinancing Activities..Transactions involving creditors orTransactions involving creditors or
stockholders are stockholders are Financing ActivitiesFinancing Activities..
Learning Unit 21-1 (Statement Learning Unit 21-1 (Statement of Cash Flows: Indirect of Cash Flows: Indirect
Method)Method)
21 - 13© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Prepare the Operating ActivitiesPrepare the Operating Activities
section of the statement of cashsection of the statement of cash
flows using the direct method.flows using the direct method.
Learning Objective 3Learning Objective 3
21 - 14© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 21-2 (Statement Learning Unit 21-2 (Statement of Cash Flows: Direct Method)of Cash Flows: Direct Method)
The The directdirect methodmethod determines the amount determines the amountof cash inflows and cash outflows.of cash inflows and cash outflows.
The The directdirect methodmethod determines the amount determines the amountof cash inflows and cash outflows.of cash inflows and cash outflows.
It identifies the activities thatIt identifies the activities thatincrease or decrease cash.increase or decrease cash.
It identifies the activities thatIt identifies the activities thatincrease or decrease cash.increase or decrease cash.
21 - 15© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Statement of Cash Flows—Statement of Cash Flows—DirectDirect MethodMethod))For Year Ended December 31, 200xFor Year Ended December 31, 200x
Net cash flows from operating activities:Net cash flows from operating activities:Cash received from customersCash received from customers $185,160$185,160Cash paid for merchandise inventoryCash paid for merchandise inventory ($101,500) ($101,500)Cash paid for salariesCash paid for salaries (51,040) (51,040)Cash paid for insuranceCash paid for insurance (7,400) (7,400)Cash paid for rentCash paid for rent (3,600) (3,600)Cash paid for miscellaneous expensesCash paid for miscellaneous expenses (1,200) (1,200)Total cash paid for operating activities Total cash paid for operating activities (164,740) (164,740)Net cash flows from operating activitiesNet cash flows from operating activities $ 20,420$ 20,420
Net cash flows from operating activities:Net cash flows from operating activities:Cash received from customersCash received from customers $185,160$185,160Cash paid for merchandise inventoryCash paid for merchandise inventory ($101,500) ($101,500)Cash paid for salariesCash paid for salaries (51,040) (51,040)Cash paid for insuranceCash paid for insurance (7,400) (7,400)Cash paid for rentCash paid for rent (3,600) (3,600)Cash paid for miscellaneous expensesCash paid for miscellaneous expenses (1,200) (1,200)Total cash paid for operating activities Total cash paid for operating activities (164,740) (164,740)Net cash flows from operating activitiesNet cash flows from operating activities $ 20,420$ 20,420
Learning Unit 21-2 (Statement Learning Unit 21-2 (Statement of Cash Flows: Direct Method)of Cash Flows: Direct Method)
21 - 16© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Preparing a statementPreparing a statement
of cash flows.of cash flows.
Learning Objective 4Learning Objective 4
21 - 17© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
The statement of cash flows...The statement of cash flows...The statement of cash flows...The statement of cash flows...
– – summarizes the changes insummarizes the changes inthe sources and uses of cash.the sources and uses of cash.– – summarizes the changes insummarizes the changes inthe sources and uses of cash.the sources and uses of cash.
– – proves net increaseproves net increase(or decrease) in cash.(or decrease) in cash.– – proves net increaseproves net increase(or decrease) in cash.(or decrease) in cash.
Learning Unit 21-2 (Statement Learning Unit 21-2 (Statement of Cash Flows: Direct Method)of Cash Flows: Direct Method)
21 - 18© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Statement of Cash FlowsStatement of Cash Flows(Investing Activities)(Investing Activities)
For Year Ended December 31, 200xFor Year Ended December 31, 200x
Purchase of plant assetPurchase of plant asset ($30,000)($30,000)Net cash used by investing activitiesNet cash used by investing activities (30,000)(30,000)Purchase of plant assetPurchase of plant asset ($30,000)($30,000)Net cash used by investing activitiesNet cash used by investing activities (30,000)(30,000)
Learning Unit 21-2 (Statement Learning Unit 21-2 (Statement of Cash Flows: Direct Method)of Cash Flows: Direct Method)
21 - 19© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Statement of Cash FlowsStatement of Cash Flows(Financing Activities)(Financing Activities)
For Year Ended December 31, 200xFor Year Ended December 31, 200x
Issuance of long-term noteIssuance of long-term note $ 8,000$ 8,000Issuance of common stockIssuance of common stock 10,000 10,000Payment of dividendsPayment of dividends (8,000) (8,000)Net cash provided by Net cash provided by financing activitiesfinancing activities $10,000$10,000
Issuance of long-term noteIssuance of long-term note $ 8,000$ 8,000Issuance of common stockIssuance of common stock 10,000 10,000Payment of dividendsPayment of dividends (8,000) (8,000)Net cash provided by Net cash provided by financing activitiesfinancing activities $10,000$10,000
Learning Unit 21-2 (Statement Learning Unit 21-2 (Statement of Cash Flows: Direct Method)of Cash Flows: Direct Method)
21 - 20© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Statement of Cash FlowsStatement of Cash FlowsFor Year Ended December 31, 200xFor Year Ended December 31, 200x
Net cash flow from operating activitiesNet cash flow from operating activities $20,420$20,420Net cash used by investing activitiesNet cash used by investing activities (30,000) (30,000)Net cash provided by financing activitiesNet cash provided by financing activities $10,000$10,000Net increase in cashNet increase in cash $ 420$ 420
Net cash flow from operating activitiesNet cash flow from operating activities $20,420$20,420Net cash used by investing activitiesNet cash used by investing activities (30,000) (30,000)Net cash provided by financing activitiesNet cash provided by financing activities $10,000$10,000Net increase in cashNet increase in cash $ 420$ 420
Learning Unit 21-2 (Statement Learning Unit 21-2 (Statement of Cash Flows: Direct Method)of Cash Flows: Direct Method)