中级财务会计英文ch13.ppt

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1、,Statement of Cash Flows,Chapter 13,Describe the purpose of the statement of cash flows.Identify the major classifications of cash flows.Differentiate between net income and net cash flows from operating activities.Contrast the direct and indirect methods of calculating net cash flow from operating

2、activities.Determine net cash flows from investing and financing activities.Prepare a statement of cash flows.Identify sources of information for a statement of cash flows.Discuss special problems in preparing a statement of cash flows.Explain the use of a worksheet in preparing a statement of cash

3、flows.,Learning Objectives,.is a report listing cash inflows and outflows by category.explains the change in cash during the period.is required by SFAS No.95,Statement of Cash Flows(SCF),Increased Business Risk-Growing bankruptcy rate in the 70s and 80s.-The problem of uneven cash flows for small co

4、mpanies.-Cash flow information helps investors avoid losses from business failures.,Cash Flow Reportingthe Trend Toward Cash Flows,Previous Funds Statements-Statement of Changes in Financial Position(APB Opinion No.19)Cash Basis or Working Capital BasisDifferences between Cash and Accrual Accounting

5、-GAAP is increasingly complex.Cash flow information is important in the short run.,Cash Flow Reportingthe Trend Toward Cash Flows,Free cash flowFinancial flexibility-the ability to use cash flows to meet unexpected needs and opportunities.,Cash Flow Reportingthe Usefulness of Cash Flows,The Statemen

6、t helps users assess.a firms ability to generate cash.a firms ability to meet its obligations.the reasons for differences between income and associated cash flows.the effect of cash and noncash investing and financing activities on a firms financial position.,Statement of Cash FlowsPurpose,Requires

7、the use of cash and cash equivalents as the basis of reporting.Allows two methods of reporting.Direct MethodShows actual net cash inflow(outflow)from operations.Indirect MethodShows net cash inflow(outflow)from operations as an adjustment of net income.,SFAS No.95 Requirements,Cash is characterized

8、as those items immediately available to pay obligations.Cash Equivalents are characterized as-Short-term,highly liquid investments.-Readily convertible into known and fixed amounts of cash.-So near maturity that there is insignificant risk of market value fluctuation from interest rate changes.,Cash

9、 and Cash Equivalents,Cash Flows from Operating Activities-Can be determined using either the direct method or the indirect method.Cash Flows from Investing ActivitiesCash Flows from Financing Activities,Cash Flow Categories,InflowsReceipts from customersInterest receivedDividends receivedRefunds fr

10、om suppliersRevenues received in advance,OutflowsPayments to suppliersPayments to employeesInterest paymentsIncome tax paymentsPayments on operating leases,Cash From Operating Activities,InflowsProceeds from plant assets salesProceeds from sales and maturities of debt and equity securitiesCollection

11、s of loan principalSale of real estate,OutflowsPayments to purchase plant assetsPurchases of debt and equity securitiesLoans to othersPayments to purchase real estate,Cash Flows From Investing Activities,InflowsProceeds from debt for specific investing activitiesProceeds from loans from financial in

12、stitutionsProceeds from stock or bond issues,OutflowsDividends paid to stockholdersPrincipal payments on loans from financial institutionsPrincipal payments on capital leases,Cash Flows From Financing Activities,Disclosure is required for significant noncash investing and financing activities.Disclo

13、sure should appear in a supporting schedule to the Statement of Cash Flows or in the Notes to the Financial Statements.,Noncash Activities,Common noncash activities include:-Retirement of bonds by issuing stock.-Settlement of debt by transferring assets.-Incurrence of capitalized lease obligations.S

14、FAS No.95 provides no guidance with regard to stock dividends or stock splits.,Noncash Activities,Under the direct method,a company deducts its operating cash outflows from its operating cash inflows to determine its net cash flow from operating activities.,Direct Method,Information regarding cash f

15、lows must come from several sources.The order for the information search is:-The income statement.-Additional statements or schedules.-The comparative balance sheets.,Operating Cash FlowsDirect Method,Inflows(3)Cash from customers(A/R)Cash from interest revenue(Interest Receivable)Cash from dividend

16、 revenue(Dividends Rec.)Outflows(5)Cash paid to suppliers(A/P)Cash paid for wages(Wages Payable)Other cash expenses(Prepaid/Accrued)Cash paid for interest expense(Interest Payable)Cash paid for taxes(T/P and Deferred Tax),Direct Method,Use T accounts to examine the 3 inflows and 5 outflows in the di

17、rect method.,Direct Method,Sales Revenue,Accounts Receivable,Bal.0,Smith Company made cash sales of$30,000 and credit sales of$42,000.How much cash was collected from customers?,42,000 Bal.5,000,37,000,$67,000,Cash From Customers,The key information is cash collected from customers.Can be computed t

18、wo ways:Obtained from cash receipts journalObtained from accrual sales information:,Cash From CustomersAnalyzing Sales,The balance in A/R was$40,000 on 1/1/X8 and the balance was$52,000 on 12/31/X8.If total sales revenue for 19X8 was$800,000,then how much cash was received from customers?a.$800,000

19、b.$760,000 c.$812,000 d.$788,000,Analyzing SalesQuestion,The balance in A/R was$40,000 on 1/1/X8 and the balance was$52,000 on 12/31/X8.If total sales revenue for 19X8 was$800,000,then how much cash was received from customers?a.$800,000 b.$760,000 c.$812,000 d.$788,000,A/R increased$12,000 during t

20、he year.Subtract increases in A/R during the year from total revenues to arrive at cash collected from customers.$800,000-$12,000=$788,000,Analyzing SalesQuestion,Receipts can be found in the cash receipts journal.Receipts can also be inferred:,Cash From Customers Deferred Revenue,Interest Receivabl

21、e,Dividends Receivable,Bal.0Revenue 4,000Bal.1,000,Bal.30,000Revenue 42,000Bal.12,000,Ives Company earned interest revenue of$42,000÷nd revenue of$4,000.Interest Receivable had a beginning balance of$30,000 and an ending balance of$12,000.Dividends receivable had a beginning balance of$0 and a

22、n ending balance of$1,000.How much cash from interest and dividends was collected?,Dividends and Interest Collected,Interest Receivable,Dividends Receivable,Bal.0Revenue 4,000Bal.1,000,Bal.30,000Revenue 42,000Bal.12,000,Ives Company earned interest revenue of$42,000 and dividend revenue of$4,000.Dur

23、ing the year$60,000 of interest and$3,000 of dividends was collected.,60,000,3,000,=72,000,=72,000,=4,000,=4,000,Dividends and Interest Collected,Payments can be found in the purchases journal.-assuming accounts payable is used to purchase inventory.,Cash Paid to Suppliers,Copeland Company had begin

24、ning and ending balances in Accounts Payable of$10,300 and$12,100,respectively.The beginning and ending balances in inventory were$12,500 and$11,000 respectively.The cost of goods sold was$51,000.How much cash was paid to suppliers?,Accounts Payable,Inventory,Bal.12,500Bal.11,000,10,30012,100,51,000

25、 Cost of goods sold,49,500 Purchases 49,500,Cash paid$47,700,62,000,59,800,59,800,62,000,Cash Paid to Suppliers,Payments can be inferred:,Cash Paid to Suppliers,Examine the following information and determine how much was paid for inventory in X7.a.$900,000 b.$923,000 c.$947,000 d.$877,000,Cash Paid

26、 to SuppliersQuestion,Examine the following information and determine how much was paid for inventory in X7.a.$900,000 b.$923,000 c.$947,000 d.$877,000,Inventory increased$35,000 in X7.Accounts Payable increased$12,000 in X7.+Inventory Increases-Accounts Payable Increases$900,000+$35,000-$12,000=$92

27、3,000,Cash Paid to SuppliersQuestion,Payments can be pulled from the payroll journal.,Cash Paid to Employees,Smith Company had beginning and balances in Salaries Payable of$0 and$1,000.respectively.Salary expense for the year was$14,000.How much cash was paid to employees?,Salaries Payable,Cash paid

28、 13,000,0Bal.14,000Salaries expense 1,000Bal.,Cash Paid to Employees,Cash paid to employees can be computed from the accrual-basis expense.,Cash Paid to Employees,Salary Expense for X7 was$700,000.The balance in Salary Payable was$35,000 on 12/31/X6 and the balance was$10,000 on 12/31/X7.How much ca

29、sh was paid to employees in X7?a.$700,000 b.$735,000 c.$725,000 d.$675,000,Cash Paid to EmployeesQuestion,Salary Expense for X7 was$700,000.The balance in Salary Payable was$35,000 on 12/31/X6 and the balance was$10,000 on 12/31/X7.How much cash was paid to employees in X7?a.$700,000 b.$735,000 c.$7

30、25,000 d.$675,000,Salary Payable decreased$25,000 during the year.Add the decrease in Salary Payable to Salary Expense to arrive at cash paid to employees.$700,000+$25,000=$725,000,Cash Paid to EmployeesQuestion,Payments can be found in the cash disbursements journal.,Cash Expenses,Wolverine Company

31、 paid$320,000 for expenses.,Prepaid/Accrued Expenses,Prepaid Bal.20,000Cash paid 320,000Prepaid Bal.12,000,60,000 Accrued Bal.300,000 Cash operating expenses 32,000 Accrued Bal.,Cash Expenses,Payments can be inferred:,Cash Expenses,Payments can be found in the cash disbursements journal.Payments can

32、 be inferred:,Direct MethodPrepaid Expenses,Depreciation,Amortization,and Depletion Expenses-Operating cash flows are not involved.-They are not disclosed in the operating cash flows section of the direct method statement.,Direct MethodEstimated Expenses,Sales revenue(cash and A/R)$70,000 Less:Cost

33、of goods sold(cash and A/P)$(29,000)Salaries expense(cash and S/P)(13,000)Depreciation expense(8,000)(50,000)Income before income taxes$20,000Income tax expense(cash)(6,000)Net income$14,000,Ryan Corporations Income Statement,Direct Method,Sales Revenue,Accounts Receivable,Bal.22,600,Accounts receiv

34、able decreased by$2,600 for Ryan Company.How much cash was collected from customers?,70,000 Bal.20,000,72,600,$72,600,Cash From Customers-Ryan Company,Ryan Company had beginning and ending balances in Accounts Payable of$10,300 and$3,300,respectively.The beginning and ending balances in inventory we

35、re$9,000 and$11,000 respectively.The cost of goods sold was$29,000.How much cash was paid to suppliers?,Accounts Payable,Inventory,Bal.9,000Bal.11,000,10,3003,300,29,000 Cost of goods sold,31,000 Purchases 31,000,Cash paid$38,000,Cash Paid to Suppliers-Ryan Company,Ryan Company had beginning and bal

36、ances in Salaries Payable of$200 and$1,000.respectively.Salary expense for the year was$13,000.How much cash was paid to employees?,Salaries Payable,Cash paid 12,200,200Bal.13,000Salaries expense 1,000Bal.,Ryan Company had no change in the Taxes Payable and Deferred Taxes accounts.,Cash Paid to Empl

37、oyees-Ryan Company,Cash flows From Operating Activities:Cash Inflows:Cash received from customers$72,600 Cash inflows from operating activities$72,600 Cash Outflows:Cash paid to suppliers$(38,000)Cash paid to employees(12,200)Cash paid for income taxes(6,000)Cash outflows for operating activities(56

38、,200)Net cash provided by operating activities$16,400,Direct Method-Ryan Company,Inflows(3)Cash from customers(A/R)Cash from interest revenue(Interest Receivable)Cash from dividend revenue(Dividends Rec.)Outflows(5)Cash paid to suppliers(A/P)Cash paid for wages(Wages Payable)Other cash expenses(Prep

39、aid/Accrued)Cash paid for interest expense(Interest Payable)Cash paid for taxes(T/P and Deferred Tax),Remember to check for these cash flows.,Direct Method,Determines net cash flows from operating activities by-starting with net income.-disclosing items that reconcile net income to operating cash fl

40、ows.Individual operating cash flows are not disclosed.,Operating Cash FlowsIndirect Method,Indirect Method Example,Prepare the statements heading and list the three major sections.Determine the net income and list it as the first item in the net cash flow from operating activities section.Add back a

41、ny non-cash expenses.Adjust net income for gains and losses not related to operations.,Continued,Steps in Visual Inspection Method-Indirect Method,Adjust net income for the change in deferred taxesAdjust net income for income and losses on investments carried under the equity method.,Continued,Steps

42、 in Visual Inspection Method-Indirect Method,Add to net income-Depreciation,depletion and amoritzation expense.-Losses.-Noncash expenses.Subtract from net income-Gains.-Bond premium amortization.-Noncash Revenues.,Indirect MethodReconciling Items,Examine all working capital accounts,except cash,shor

43、t-term non-trade notes payable and dividends payable.A Debit to a noncash account is a Decrease in cash.(If the account had net debits during the year).A Credit to a noncash account is an increase in cash.(if the account had net credits during the year).,Continued,Steps in Visual Inspection Method-I

44、ndirect Method,Note:Cash and cash equivalents,short-term investments in securities available for sale,dividends payable,and short-term payables to financial institutions are excluded from this category.,Indirect MethodWorking Capital Accounts,Calculate the cash provided or cash used by operating act

45、ivities.Examine comparative balance sheets for changes in non-current assets.Calculate the cash provided or cash used by investing activities.Examine long-term liabilities and equity accounts.,Continued,Steps in Visual Inspection Method-Indirect Method,Calculate the cash provided or cash used by fin

46、ancing activities.Calculate the net change in cash that occurred during the accounting period.Add the beginning cashThe total should equal the ending cash on the balance sheetList interest and taxes paid.List significant noncash investing and financing activities.,Steps in Visual Inspection Method-I

47、ndirect Method,RYAN COMPANYStatement of Cash FlowsFor Year Ended December 31,2007,The statements heading,Simple Statement of Cash Flows,Remember the adjustments to net income are:Noncash expensesGains/losses on investmentsDeferred taxesEquity incomeWorking capital changes,Adjustments to Net Income,N

48、et Cash flows From Operating Activities:Net income$14,000 Adjustments for differences between income flows and cash flows for operating activities:Add:Depreciation expense8,000 Decrease in accounts receivable2,600 Increase in salaries payable800 Less:Increase in inventory(2,000)Decrease in accounts

49、payable(7,000)Net cash provided by operating activities$16,400,Same number as direct method,Indirect Method-Ryan Corporation,Leyton Company Information,Net Cash Flow From Operating ActivitiesNet income$7,000 Adjustments for differences between incomeand cash flows from operating activities:Add:Depre

50、ciation expense2,300 Increase in accounts payable1,500 Less:Increase in accounts receivable(2,700)1,100Net cash provided by operating activities$8,100 Cash Flows From Investing ActivitiesPayment for purchase of building$(12,000)Proceeds from sale of land,at cost 3,000 Net cash used for investing act