河南财政税务高等专科学校 2 CHAPTER 17 STATEMENT OF CASH FLOWS 现金流量表的编制目的 产生现金流量的三大活动 直接法编制 间接法编制 复习知识点

河南财政税务高等专科学校 3 STUDY OBJECTIVE 1 PURPOSE OF CASH FLOW STATEMENT STUDY OBJECTIVE 1 PURPOSE OF CASH FLOW STATEMENT The cash flow statement reports CASH RECEIPTS and CASH PAYMENTS from OPERATING, FINANCING, and INVESTING activities. The cash flow statement helps users assess: 1.Ability to generate future cash flows 2.Ability to pay dividends and meet obligations 3.Why net income is different from operating cash flows 4.Cash investing and financing transactions

河南财政税务高等专科学校 4 The Statement of Cash Flows must include the following three sections: l Cash Flows from Operating Activities l Cash Flows from Investing Activities l Cash Flows from Financing Activities The Statement of Cash Flows must include the following three sections: l Cash Flows from Operating Activities l Cash Flows from Investing Activities l Cash Flows from Financing Activities Classification of Cash Flows

河南财政税务高等专科学校 5  Cash inflows:  From sale of goods or services  From return on loans (interest received) and on equity securities (dividends received)  Cash outflows:  To suppliers for inventory  To employees for services  To government for taxes  To lenders for interest  To others for expenses STUDY OBJECTIVE 2 OPERATING CASH FLOWS STUDY OBJECTIVE 2 OPERATING CASH FLOWS

河南财政税务高等专科学校 6  Cash inflows:  From sale of property, plant, and equipment  From sale of debt or equity securities of other entities  From collection of principal on loans to other entities  Cash outflows:  To purchase property, plant, and equipment  To purchase debt or equity securities of other entities  To make loans to other entities STUDY OBJECTIVE 2 INVESTING CASH FLOWS STUDY OBJECTIVE 2 INVESTING CASH FLOWS

河南财政税务高等专科学校 7  Cash inflows:  From sale of equity securities (company's own stock)  From issuance of debt (bonds and notes)  Cash outflows:  To stockholders as dividends  To redeem long-term debt or reacquire capital stock STUDY OBJECTIVE 2 FINANCING CASH FLOWS STUDY OBJECTIVE 2 FINANCING CASH FLOWS

河南财政税务高等专科学校 8 Cash Equivalents Cash Currency l Short-term, highly liquid investments. l Readily convertible into cash. l So near maturity that market value is unaffected by interest rate changes. l Short-term, highly liquid investments. l Readily convertible into cash. l So near maturity that market value is unaffected by interest rate changes. Cash and Cash Equivalents

河南财政税务高等专科学校 9 1. Issuance of common stock to purchase assets. 2. Conversion of bonds into common stock. 3. Issuance of debt to purchase assets. 4. Exchanges of plant assets. SIGNIFICANT NON-CASH ACTIVITIES The following activities are reported in a separate schedule (bottom of cash flow statement) or a note to the F/S.

河南财政税务高等专科学校 10 COMPANY NAME Statement of Cash Flows Period Covered Cash flows from operating activities (List of individual items)XX Net cash provided (used) by operating activitiesXXX Cash flows from investing activities (List of individual inflows and outflows)XX Net cash provided (used) by investing activitiesXXX Cash flows from financing activities (List of individual inflows and outflows)XX Net cash provided (used) by financing activitiesXXX Net increase (decrease) in cashXXX Cash at beginning of periodXXX Cash at end of periodXXX Noncash investing and financing activities (List of individual noncash transactions)XXX CASH FLOW STATEMENT FORMAT CASH FLOW STATEMENT FORMAT

河南财政税务高等专科学校 11 Needed to prepare cash flow statement: Comparative balance sheet Current income statement Additional information. INFORMATION REQUIRED TO PREPARE CASH FLOW STATEMENT INFORMATION REQUIRED TO PREPARE CASH FLOW STATEMENT The SCF deals with cash receipts and payments, so the accrual concept is not used in the preparation of the SCF.

河南财政税务高等专科学校 12 STEPS IN PREPARING CASH FLOW STATEMENT STEPS IN PREPARING CASH FLOW STATEMENT

河南财政税务高等专科学校 13 STUDY OBJECTIVE 3 INDIRECT METHOD STUDY OBJECTIVE 3 INDIRECT METHOD Cash flow from operating activitiesX Cash flow from investing activities (X) Cash flow from financing activitiesX Net change in cashX Beginning cash & equivalentsX Ending cash & equivalentsxx The operating section reconciles NET INCOME with CASH FLOW FROM OPERATIONS The investing and financing sections are the same regardless of which method is used.

河南财政税务高等专科学校 14 INDIRECT METHOD

河南财政税务高等专科学校 15 INDIRECT METHOD For the year ended Dec 31, 2006

河南财政税务高等专科学校 16 INDIRECT METHOD Using the information provided, the cash flow statement will account for every change on the comparative balance sheet. The objective: to determine net cash flow during the period, which should match the change in cash during the period

河南财政税务高等专科学校 17 INDIRECT METHOD Net income145,000 Adjustments to reconcile net income to cash flow from operations Depreciation exp9,000 Loss on sale of equipment3,000 Decrease in A/R10,000 Increase in inventory(5,000) Increase in prepaid expenses(4,000) Increase in accounts payable16,000 Decrease in income taxes payable(2,000)27,000 Net cash provided by operating activities172,000 Purchase of building(120,000) Purchase of equipment(25,000) Sale of equipment4,000 Net cash used by investing activities(141,000) Issuance of common stock20,000 Payment of dividends(29,000) Net cash used by financing activities(9,000) Net increase in cash22,000 Beginning cash33,000 Ending cash55,000

河南财政税务高等专科学校 18 REVIEW QUESTION A company’s net income is $132,000, and during the year the following occurred: 1.Accounts payable increased $10,000, 2.Inventory decreased $6,000 3.Accounts receivable increased $12,000. Compute cash flows from operations. Net income132,000 Increase in A/R(12,000) Increase in A/P10,000 Decrease in Inventory6,000 Cash flows from operations136,000

河南财政税务高等专科学校 19 STUDY OBJECTIVE 4 DIRECT METHOD STUDY OBJECTIVE 4 DIRECT METHOD The direct method does not reconcile net income with cash flow from operations. Instead, the operating section lists cash paid and cash received for all income statement items.

河南财政税务高等专科学校 20 JUAREZ COMPANY Comparative Balance Sheet Change Assets Increase/Decrease Cash $ 191,000 $ 159,000 $ 32,000 Increase Accounts receivable 12,000 15,000 3,000 Decrease Inventory 170, ,000 10,000 Increase Prepaid expenses 6,000 8,000 2,000 Decrease Land Equip Accumulated Dep equip 140, ,000 (16,000) - 80, –0– 60,000 Increase 160,000 Increase 16,000 Increase Total $663,000 $422,000 Liabilities and Stockholders’ Equity Accounts payable $52,000 $60,000 $8,000 Increase Accrued expenses payable 15,000 20,000 5,000 Increase Income taxes payable Bonds payable Common stock 12, , ,000 –0– –0– 300,000 12,000 Increase 130,000 Increase 60,000 Increase Retained earnings 94,000 42,000 52,000 Increase Total $663,000 $422,000 DIRECT METHOD

河南财政税务高等专科学校 21 JUAREZ COMPANY Income Statement Forthe Year Ended December 31, 2006 Revenues from sales $ 975,000 Cost of goods sold $ 660,000 Operating expenses (excluding depreciation) 176,000 Depreciation expense 18,000 Loss on sale ofstore equipment 1, ,000 Income before income taxes 120,000 Income tax expense 36,000 Net income $ 84,000 Additional information: (1) In 2006, the company declared and paid a $32,000 cash dividend. (2) Bonds were issued at face value for $130,000 in cash. (3) Equipment costing $180,000 was purchased for cash. (4) Equipment costing $20,000 was sold for $17,000 cash when the book value of the equipment was $18,000. (5) Common stock of $60,000 was issued to ac quire land. DIRECT METHOD

河南财政税务高等专科学校 22 DIRECT METHOD OPERATING ACTIVITIES DIRECT METHOD OPERATING ACTIVITIES

河南财政税务高等专科学校 23 Revenues from sales$ 975,000 Add: Decrease in accounts receivable3,000 Cash receipts from customers$ 978,000 CASH RECEIPTS FROM CUSTOMERS If accounts receivable decreases from one period to another, Cash collections > credit sales. Note in each case, the interaction between balance sheet and income statement accounts

河南财政税务高等专科学校 24 PAYMENTS TO SUPPLIERS 1.Adjust COGS for the change in inventory to get purchases 2.Adjust purchases for the change in A/P to get payments Cost of goods sold660,000 Add: increase in inventory10,000 Purchases670,000 Add: decrease in A/P8,000 Cash payments to suppliers678,000

河南财政税务高等专科学校 25 Operating expenses are adjusted for changes in Prepaid assets and accrued expenses PAYMENTS FOR OPERATING EXPENSES Operating expenses176,000 Deduct: decrease in prepaid expenses(2,000) Add: decrease in accrued expenses payable 5,000 Cash payments for operating expenses 179,000

河南财政税务高等专科学校 26 Tax expense is adjusted for changes in Prepaid taxes and taxes payable PAYMENTS FOR TAXES Income tax expense36,000 Deduct: increase in income tax payable(12,000) Cash payments for taxes24,000 If tax payable increases during the year, Tax expense > cash paid for taxes

河南财政税务高等专科学校 27 CASH FLOW STATEMENT DIRECT METHOD CASH FLOW STATEMENT DIRECT METHOD For the year ended December 31, 2006

河南财政税务高等专科学校 28 REVIEW QUESTION Given the following facts: 1.Beginning A/R is $44,000 2.Ending A/R is $42,000 3.Sales during the period are $129,000 Compute cash receipts from customers. Sales revenue129,000 Add: decrease in A/R2,000 Cash collected from customers131,000

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