Hhtfa9e Ch12 Inst

The Statement of Cash FlowsChapter 12

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Identify the purposes of the statement of cash flows


Timing of the Financial Statements

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12-31-11 (a point in

time)

Balance

Sheet

For the year ended 12-31-12(a period of time)

Income Statement

Balance Sheet

Statement of Stockholders’

Equity Statement of Cash Flows

12-31-12 (a point in

time)

Balance Sheet

Purposes of Cash Flow Statements


Distinguish among operating, investing and financing cash flows

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Cash Flow Categories


Relationship to Balance Sheet


Current assets Current liabilities

Long-term assets

Long-term liabilities

Owners’ equity

Operating cash flows

Operating cash flows

Financing cash flowsInvesting

cash flows

Formats for Cash Flow Statement


Prepare a statement of cash flows by the indirect method


Finding Needed Amounts: Operating Activities•From the income statement

▫Net income▫Depreciation, depletion and amortization

expense▫Gains and losses on sales of long-term asset

•From the comparative balance sheets▫Increase or decrease in each current asset

(other than cash)▫Increase or decrease in each current

liability11Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall.

Operating Activities


Net Income

Depreciation, Depletion & Amortization

Gains on sales of long-term

assets

Losses on sales of long-term

assets

Increases in current

assets

Decreases in

current liabilities

Decreases in

current assets

Increases in current liabilities

Exercise 12-16A


A Sale of long-term investmentB Issuance of long-term note payable to borrow

cashC Increase in prepaid expensesD Payment of cash dividendE Loss on sale of equipmentF Decrease in merchandise inventoryG Acquisition of equipment by issuance of a note

payableH Increase in accounts payableI Amortization of intangible assetsJ Net income

I+F+

O+NO+O+O+

O+F-O-

Exercise 12-16A


K Payment of long-term debtL Accrual of salary expenseM Cash sale of landN Purchase of long-term investmentO Acquisition of building by cash paymentP Purchase of treasury stockQ Issuance of common stock for cashR Decrease in accrued liabilitiesS Depreciation of equipment

F-N

F-F+O-O+

I-I -I+

Cash Flow Template: Operating


Cash Flows From Operating ActivitiesNet incomeAdjustments to reconcile net income to net cash provided by operating activities:+ Depreciation/depletion/amortization expense+ Loss on sale of long-term assets- Gain on sale of long-term assets- Increases in current assets other than cash+ Decreases in current assets other than cash+ Increases in current liabilities- Decreases in current liabilities= Net cash provided by operating activities

Cash Flow Template: Investing


Cash Flows from Investing Activities+ Sales of long-term assets- Purchases of long-term assets+ Collections of notes receivable- Loans to others= Net cash provided by (used for) investing activities

Computing Purchases and Sales of Plant Assets


Plant Assets, NetBeginning balance

+

Acquisitions

- Depreciation

- Book value of assets sold

= Ending Balance

Sale proceeds

= Book value of assets sold

+ Gain - Loss


Plant Assets, Net

Beginning balance

Acquisitions

Depreciation

Book value of assets sold

Ending balance

Computing Purchases and Sales of Investments


InvestmentsBeginning balance

+

Purchases - Book value of investments sold

= Ending Balance

InvestmentsBeginning balance

Purchases

Book value of investments sold

Ending balance

Loans and Collections


Notes ReceivableBeginning balance

+

New Loans made

- Collections = Ending Balance

Notes ReceivableBeginning balance

New loans made

Collections

Ending balance

Cash Flow Template: Financing


Cash Flows from Financing Activities+ Issuance of stock- Purchase of treasury stock

+ Borrowing- Payment of notes and bonds payable- Payment of dividends

Net cash provided by (used in) financing activities

Computing Issuance and Payments of Long-Term Debt


Long-Term Debt (Notes payable, Bonds payable)Beginning balance

+

Issuance of new debt

- Payment of debt

=Ending Balance

Long-Term DebtBeginning balance

Payments of debtIssuance of new debt

Ending balance

Computing Issuance of Stock and Purchases of Treasury Stock


Common StockBeginning balance

+ Issuance of new stock

= Ending Balance

Common StockBeginning balance

Issuance of new stock

Ending balance

Treasury StockBeginning balance

+

Purchase of treasury stock

= Ending Balance

Treasury StockBeginning balance

Ending balance

Purchase of treasury stock

Computing Dividends


Retained EarningsBeginning balance

+

Net income - Dividends declared

=Ending Balance

Retained EarningsBeginning balance

Dividends declaredNet income

Ending balance

Noncash Investing and Financing Activities


Noncash investing and financing activities: Acquisition of building by issuing common stock $$$$ Acquisition of land by issuing note payable $$$$ Payment of long-term debt by issuing stock $$$$ Bonds converted into common stock $$$$ Stock dividends distributed $$$$Total noncash investing and financing activities $$$$$

Exercise 12-20A


December 31,2012 2011

Current assets: Cash $125,000 $50,800 Accounts receivable 41,000 57,000 Inventory 94,000 73,000 Prepaid expenses 9,200 8,700Current liabilities: Accounts payable $32,000 $18,000 Accrued liabilities 82,000 57,000

Exercise 12-20A


December 31,2012 2011

Current assets: Change Cash $125,000 $50,800 $74,200 Accounts receivable 41,000 57,000 (16,000) Inventory 94,000 73,000 21,000 Prepaid expenses 9,200 8,700 500Current liabilities: Accounts payable $32,000 $18,000 14,000 Accrued liabilities 82,000 57,000 25,000

Exercise 12-20A


Cash Flows From Operating ActivitiesNet income $39,700Adjustments to reconcile net income to net cash provided by operating activities:+ Depreciation expense 28,000+ Decrease in accounts receivable 16,000- Increase in inventory (21,000)- Increase in prepaid expenses (500)+ Increase in accounts payable 14,000+ Increase in accrued liabilities 25,000= Net cash provided by operating activities $101,200

Exercise 12-20A


Cash Flows from Investing Activities+ Sales of land 25,000- Purchases of plant assets (75,000)= Net cash used for investing activities ($50,000)

Cash Flows from Financing Activities+ Issuance of common stock 50,000- Payment of note payable (16,000)- Payment of dividends (11,000)= Net cash provided by financing activities $23,000

Exercise 12-20A

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Cash Flows from Investing Activities+ Sales of land 25,000- Purchases of plant assets (75,000)= Net cash used for investing activities (50,000)Cash Flows from Financing Activities+ Issuance of common stock 50,000- Payment of note payable (16,000)- Payment of dividends (11,000)= Net cash provided by financing activities $23,000

Net increase in cash $74,200Cash balance, December 31, 2011 50,800Cash balance, December 31, 2012 $125,000

Net cash provided by operating activities 101,200

Exercise 12-20A


Non-cash Investing & Financing ActivitiesAcquisition of plant assets by signing note payable $55,000

Prepare a statement of cash flows by the direct method


The Direct Method•Preferred by the Financial Accounting

Standards Board▫Provides clearer information about the

sources and uses of cash•Very few companies use

▫Takes more computations•Only affects operating activities


Operating Cash Flows: Direct Method•Receipts:

▫Collections from customers▫Interest and dividends

•Payments▫To suppliers▫To employees▫For interest and income taxes

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Computing Operating Cash Flows

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Receipts

Income Statement Account Balance Sheet Account

From Customers Sales revenue + Decrease in Accounts Receivable- Increase in Accounts Receivable

Of interest Interest revenue + Decrease in Interest Receivable- Increase in Interest Receivable



Payments


To suppliers

Cost of goods sold

+ Increase in Inventory

+ Decrease in Accounts Payable

- Decrease in Inventory

- Increase in Accounts Payable

Operating expenses

+ Increase in Prepaids

+ Decrease in Accrued Liabilities

- Decrease in Prepaids

- Increase in Accrued Liabilities

To employees

Salary expense

+ Decrease in Salary Payable- Increase in Salary Payable



Payments


For interest

Interest expense

+ Decrease in Interest Payable- Increase in Interest Payable

For income taxes

Income tax expense

+ Decrease in Income Tax Payable- Increase in Income Tax Payable

Hhtfa9e Ch12 Inst

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