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PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Reporting the Statement of Cash Flows Chapter 16

Operating Activities C1

Investing Activities C1

Financing Activities C1

Noncash Investing and Financing C1 Examples of Noncash Investing and Financing Activities

Format of the Statement of Cash Flows

Preparing the Statement of Cash Flows P1

Analyzing the Cash Account P1 The Cash account is a natural place to look for information about cash flows from operating, investing, and financing activities.

Analyzing the Cash Account P1

Analyzing Noncash Account P1 A second approach to preparing the statement of cash flows is analyzing noncash accounts.

Information to Prepare the Statement P1 Comparative Balance Sheets Comparative Balance Sheets Current Income Statement Current Income Statement Additional Information Additional Information Information to prepare the statement of cash flows usually comes from three sources:

Cash Flows from Operating Indirect and Direct Methods of Reporting The net cash amount provided by operating activities is identical under both the direct and indirect methods. Direct Method Direct Method Indirect Method Indirect Method

Global View Reporting Cash Flows from Operating Both U.S. GAAP and IFRS permit the reporting of cash flows from operating activities using either the direct or indirect method. However, two notable differences include: 1.U.S. GAAP requires cash inflows from interest revenue and dividend revenue be classified as operating, whereas IFRS permits classification under operating or investing provided that this classification is consistently applied across periods. 2.U.S. GAAP requires cash outflows for interest expense be classified as operating, whereas IFRS again permits classification under operating or financing provided that it is consistently applied across periods. Reporting Cash Flows from Investing and Financing U.S. GAAP and IFRS are broadly similar in computing and classifying cash flows from investing and financing activities. One notable exception is that U.S. GAAP requires cash outflows for income tax be classified as operating, whereas IFRS permits the splitting of those cash flows among operating, investing, and financing depending on the sources of that tax.

Analyzing Cash Sources and Uses A1 Most managers stress the importance of understanding and predicting cash flows for business decisions.

Used, along with income-based ratios, to assess company performance. Cash flow on total assets = Operating cash flows Average total assets Cash Flow on Total Assets A1

P4 A spreadsheet, also called work sheet or working paper, can help us organize the information needed to prepare a statement of cash flows. Appendix 16A: Spreadsheet Preparation of the Statement of Cash Flows

Appendix 16B: Direct Method of Reporting Operating Cash Flows P5 Adjust income statement accounts related to operating activities for changes in their related balance sheet accounts: Framework for reporting cash receipts and cash payments

Appendix 16B: Direct Method of Reporting Operating Cash Flows P5

End of Chapter 16