1. Cash Flow Statement Dr. Craig Ruff Department of Finance
J. Mack Robinson College of Business
Georgia State University
© 2014 Craig Ruff

2. Produced 30,000 packages to sell -$120,000
Remember Derrick?
In last video, we had this simple way of analyzing Derrick’s cash flow change from Jan 30th to Feb 30th.
Starting Cash (Feb 1)
$240,000
Produced 30,000 packages to sell
-$120,000
Produced 10,000 packages to add into inventory
-$40,000
Cash In
$100,000
Ending Cash (Feb 30)
$180,000
© 2014 Craig Ruff

3. Remember Derrick?
Now lets link this change in the cash to Derrick’s February ‘income statement’…
Starting Cash (Feb 1)
$240,000
Produced 30,000 packages to sell
-$120,000
Produced 10,000 packages to add into inventory
-$40,000
Cash In
$100,000
Ending Cash (Feb 30)
$180,000
Sales 150,000
COGS -120,000
“Income” 30,000
© 2014 Craig Ruff

4. Now bring in Derrick’s February ‘income statement’…
Remember Derrick?
Now bring in Derrick’s February ‘income statement’…
Starting Cash (Feb 1)
$240,000
Produced 30,000 packages to sell
-$120,000
Produced 10,000 packages to add into inventory
-$40,000
Cash In
$100,000
Ending Cash (Feb 30)
$180,000
That $120,000 is reflected there…
Sales 150,000
COGS -120,000
“Income” 30,000
© 2014 Craig Ruff

5. Now bring in Derrick’s February ‘income statement’…
Remember Derrick?
Now bring in Derrick’s February ‘income statement’…
Starting Cash (Feb 1)
$240,000
Produced 30,000 packages to sell
-$120,000
Produced 10,000 packages to add into inventory
-$40,000
Cash In
$100,000
Ending Cash (Feb 30)
$180,000
There is a disconnect: only $100,000 of that $150,000 was cash in the door.
Sales 150,000
COGS -120,000
“Income” 30,000
© 2014 Craig Ruff

6. Now bring in Derrick’s February ‘income statement’…
Remember Derrick?
Now bring in Derrick’s February ‘income statement’…
The income statement does not reflect this increase in inventory, as that was just a balance sheet effect. The cost of inventory does not go to the income statement until it is sold and subtracted through the cost of goods sold.
Starting Cash (Feb 1)
$240,000
Produced 30,000 packages to sell
-$120,000
Produced 10,000 packages to add into inventory
-$40,000
Cash In
$100,000
Ending Cash (Feb 30)
$180,000
Sales 150,000
COGS -120,000
“Income” 30,000
© 2014 Craig Ruff

7. For reference, here is the January 30th balance sheet…
Balance Sheet: January 30
Cash 240,000
Common Stock 400,000
A/R 100,000
Retained Earnings 20,000
Total Liab. 420,000
And Equity
Inv. 80,000
Total ,000
Assets
© 2014 Craig Ruff

8. For reference, here is the February 30th balance sheet…
Balance Sheet: February 30
Cash 180,000
Common Stock 400,000
A/R 150,000
Retained Earnings 50,000
Total Liab. 450,000
And Equity
Inv. 120,000
Total ,000
Assets
© 2014 Craig Ruff

9. Think about how the indirect cash flow statement will pick this up.
Income $30,000
Increase in AR from Jan 30 to Feb $50,000
Increase in Inventory from Jan 30 to Feb 30 -$40,000
SUM $60,000
© 2014 Craig Ruff

10. Compare the cash flow statement to the actual change in cash…
Income $30,000
Increase in AR from Jan 30 to Feb $50,000
Increase in Inventory from Jan 30 to Feb 30 -$40,000
SUM $60,000
Cash on Jan 30
$240,000
Cash on Feb 30
$180,000
Actual Change
-$60,000
AR and inventory are operational accounts.
The actual change in cash is easy to calculate. The cash flow statement is designed to tell a story.
© 2014 Craig Ruff

11. A more complicated (and comprehensive) example…
2010
2011
Cash
$1,000
$1,800
Account receivable
$5,200
$4,200
Inventory
$12,400
$13,500
Total current assets
$18,600
$19,500
Gross fixed assets
$64,600
$74,800
(Accumulated depreciation)
($10,200)
($11,300)
Net fixed assets
$54,400
$63,500
Total assets
$73,000
$83,000
Notes payable
$1,400
Accounts payable
$1,700
$3,100
Accruals
$900
$600
Total current liabilities
$3,600
$5,100
Long-term debt
$23,800
$27,900
Common stock at par
$7,000
$8,000
Additional paid in capital
$18,200
$19,000
Retained earnings
$20,400
$23,000
Total liabilities and equity
Additional Data from 2011 Income Statement:
Sales in 2011
$238,000
Net income in 2011
$9,000
© 2014 Craig Ruff

12. NIDD Cash Flow from Operations Cash Flow from Investing
Cash Flow from Financing
© 2014 Craig Ruff

13. NIDD Cash Flow from Operations Net Income $9,000
Additional Data from 2011 Income Statement:
Sales in 2011
$238,000
Net income in 2011
$9,000
Cash Flow from Operations
NIDD
2010
2011
Cash
$1,000
$1,800
Account receivable
$5,200
$4,200
Inventory
$12,400
$13,500
Total current assets
$18,600
$19,500
Gross fixed assets
$64,600
$74,800
(Accumulated depreciation)
($10,200)
($11,300)
Net fixed assets
$54,400
$63,500
Total assets
$73,000
$83,000
Notes payable
$1,400
Accounts payable
$1,700
$3,100
Accruals
$900
$600
Total current liabilities
$3,600
$5,100
Long-term debt
$23,800
$27,900
Common stock at par
$7,000
$8,000
Additional paid in capital
$18,200
$19,000
Retained earnings
$20,400
$23,000
Total liabilities and equity
Net Income $9,000
Depreciation Expense $1,100
Accts. Rec $1,000
Inventory $1,100
Accts. Pay $1,400
Accruals $300
OPERATIONS $11,100

14. Cash Flow from Investing
Additional Data from 2011 Income Statement:
Sales in 2011
$238,000
Net income in 2011
$9,000
Cash Flow from Investing
2010
2011
Cash
$1,000
$1,800
Account receivable
$5,200
$4,200
Inventory
$12,400
$13,500
Total current assets
$18,600
$19,500
Gross fixed assets
$64,600
$74,800
(Accumulated depreciation)
($10,200)
($11,300)
Net fixed assets
$54,400
$63,500
Total assets
$73,000
$83,000
Notes payable
$1,400
Accounts payable
$1,700
$3,100
Accruals
$900
$600
Total current liabilities
$3,600
$5,100
Long-term debt
$23,800
$27,900
Common stock at par
$7,000
$8,000
Additional paid in capital
$18,200
$19,000
Retained earnings
$20,400
$23,000
Total liabilities and equity
Gross Fixed -$10,200
INVESTING -$10,200

15. NIDD Cash Flow from Financing Notes Payable $400 Long Term Debt $4,100
Additional Data from 2011 Income Statement:
Sales in 2011
$238,000
Net income in 2011
$9,000
Cash Flow from Financing
2010
2011
Cash
$1,000
$1,800
Account receivable
$5,200
$4,200
Inventory
$12,400
$13,500
Total current assets
$18,600
$19,500
Gross fixed assets
$64,600
$74,800
(Accumulated depreciation)
($10,200)
($11,300)
Net fixed assets
$54,400
$63,500
Total assets
$73,000
$83,000
Notes payable
$1,400
Accounts payable
$1,700
$3,100
Accruals
$900
$600
Total current liabilities
$3,600
$5,100
Long-term debt
$23,800
$27,900
Common stock at par
$7,000
$8,000
Additional paid in capital
$18,200
$19,000
Retained earnings
$20,400
$23,000
Total liabilities and equity
Notes Payable $400
Long Term Debt $4,100
NIDD
Common Stock at Par $1,000
Addt. Pd. in Capital $800
Dividends $6,400
FINANCING $100

16. Cash Flow from Operations
Cash Flow from Investing
INVESTING $10,200
Cash Flow from Financing
FINANCING $100
SUM $800
Compare to actual change in cash: $1,800 - $1,000 = $800
It is the story.
© 2014 Craig Ruff

17. End
© 2014 Craig Ruff