© 2014 Cengage Learning. All Rights Reserved. Learning Objective © 2014 Cengage Learning. All Rights Reserved. LO5 Prepare a statement of cash flows for a merchandising business organized as a corporation.

© 2014 Cengage Learning. All Rights Reserved. Statement of Cash Flows ●Corporations are required to prepare one additional statement which addresses the changes in the business’s cash for the period. ●The cash receipts and cash payments of a company are called cash flow. ●A financial statement that summarizes cash receipts and cash payments resulting from business activities during a fiscal period is called a statement of cash flows. SLIDE 2 LO5 Lesson 22-3

© 2014 Cengage Learning. All Rights Reserved. Cash Flows from Operating, Investing, and Financing Activities ●Cash Flows from Operating Activities ●The cash receipts and payments necessary to operate a business on a day-to-day basis are called operating activities. ●Cash Flows from Investing Activities ●Cash receipts and cash payments involving the sale or purchase of assets used to earn revenue over a period of time are called investing activities. ●Cash Flows from Financing Activities ●Cash receipts and payments involving debt or equity transactions are called financing activities. SLIDE 3 LO5 Lesson 22-3

© 2014 Cengage Learning. All Rights Reserved. Cash Flows from Operating, Investing, and Financing Activities ActivityCash InflowsCash Outflows Operating Sale of merchandise Receipt of interest income Receipt of rent income Payment for daily operations (advertising, insurance, interest, inventory, rent, salaries, taxes, utilities) Investing Sale of office equipment Sale of store equipment Sale of other investments Purchase of office equipment Purchase of store equipment Purchase of other investments Financing Issuance of stock Issuance of long-term notes payable Issuance of bonds Borrowing cash against line of credit Payment of dividends Payment of principal from long- term notes payable Payment of bond principal Making principal payments SLIDE 4 LO5 Lesson 22-3

© 2014 Cengage Learning. All Rights Reserved. Operating Activities Section of a Statement of Cash Flows ●The operating activities section of the statement of cash flows can be prepared using one of two methods: the direct method and the indirect method. ●Regardless of the method used, the result is the same. SLIDE 5 LO5 Lesson 22-3

© 2014 Cengage Learning. All Rights Reserved. Completed Statement of Cash Flows SLIDE 6 LO5 Cash flows from operating activities Cash receipts from: 6 6 Cash payments for: 9 9 Net cash provided/(used) by operating activities 8 8 Calculate and enter total cash payments. Calculate and enter net cash provided by operating activities. 10 Record use and amount for each type of cash paid for operating activities. 7 7 Complete the heading 1 1 Calculate and enter total cash receipts. 5 5 Record source and amount for each type of cash received for operating activities. 4 4 Lesson 22-3

© 2014 Cengage Learning. All Rights Reserved. Investing Activities Section of a Statement of Cash Flows SLIDE 7 LO5 3 3 Calculate and enter net cash used by investing activities. 1 1 Cash flows from investing activities 2 2 Record source and amount for each type of cash received and paid for investing activities. Lesson 22-3

© 2014 Cengage Learning. All Rights Reserved. Financing Activities Section of the Statement of Cash Flows SLIDE 8 LO5 3 3 Calculate and enter net cash used by financing activities. 1 1 Cash flows from financing activities 2 2 Record source and amount for each type of cash received and paid for financing activities. Lesson 22-3

© 2014 Cengage Learning. All Rights Reserved. Completing the Statement of Cash Flows SLIDE 9 LO5 3 3 Record cash balance on December 31. Verify change in cash balance. 1 1 Calculate net change in cash. 2 2 Record cash balance on January 1. Lesson 22-3

© 2014 Cengage Learning. All Rights Reserved. Lesson 22-3 Audit Your Understanding 1.What basis is used to prepare the statement of cash flows? SLIDE 10 ANSWER Cash basis Lesson 22-3

© 2014 Cengage Learning. All Rights Reserved. Lesson 22-3 Audit Your Understanding 2.List the three categories of activities used on the statement of cash flows. SLIDE 11 ANSWER Operating activities Investing activities Financing activities Lesson 22-3