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1 Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.
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The Statement of Cash Flows Chapter 12 2 Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall.
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Identify the purposes of the statement of cash flows 3 Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall.
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Timing of the Financial Statements Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 4 12-31-11 (a point in time) Balance Sheet For the year ended 12-31-12 (a period of time) Income Statement Balance Sheet Statement of Stockholders’ Equity Statement of Cash Flows 12-31-12 (a point in time) Balance Sheet
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Purposes of Cash Flow Statements Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 5 Predicts future cash flows Evaluates management decisions Determines ability to pay dividends & interest Shows relations of net income to cash flows
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Distinguish among operating, investing and financing cash flows 6 Copyright ©2 010 Pearson Education Inc. Publishing as Prentice Hall.
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Cash Flow Categories ? Create revenue, expenses, gains and losses ? Relate to long-term assets ? Obtain cash from investors and creditors 7 Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall.
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Relationship to Balance Sheet Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 8 Current assets Current liabilities Long-term assets Long-term liabilities Owners’ equity Operating cash flows Financing cash flows Investing cash flows
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Formats for Cash Flow Statement Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 9 Reconciles from net income to cash provided by operating activities Indirect Reports all cash receipts and cash payments from operating activities Direct
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Prepare a statement of cash flows by the indirect method 10 Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall.
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Finding Needed Amounts: Operating Activities From the income statement ▫Net income ▫Depreciation, depletion and amortization expense ▫Gains and losses on sales of long-term asset From the comparative balance sheets ▫Increase or decrease in each current asset (other than cash) ▫Increase or decrease in each current liability 11 Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall.
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Operating Activities Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 12 Net Income Depreciation, Depletion & Amortization Gains on sales of long-term assets Losses on sales of long-term assets Increases in current assets Decreases in current liabilities Decreases in current assets Increases in current liabilities
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Exercise 12-16A Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 13 ASale of long-term investment BIssuance of long-term note payable to borrow cash CIncrease in prepaid expenses DPayment of cash dividend ELoss on sale of equipment FDecrease in merchandise inventory GAcquisition of equipment by issuance of a note payable HIncrease in accounts payable IAmortization of intangible assets JNet income
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Exercise 12-16A Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 14 KPayment of long-term debt LAccrual of salary expense MCash sale of land NPurchase of long-term investment OAcquisition of building by cash payment PPurchase of treasury stock QIssuance of common stock for cash RDecrease in accrued liabilities SDepreciation of equipment
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Cash Flow Template: Operating Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 15 Cash Flows From Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: + Depreciation/depletion/amortization expense + Loss on sale of long-term assets - Gain on sale of long-term assets - Increases in current assets other than cash + Decreases in current assets other than cash + Increases in current liabilities - Decreases in current liabilities = Net cash provided by operating activities
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Cash Flow Template: Investing Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 16 Cash Flows from Investing Activities +Sales of long-term assets -Purchases of long-term assets +Collections of notes receivable -Loans to others =Net cash provided by (used for) investing activities
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Computing Purchases and Sales of Plant Assets Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 17 Plant Assets, Net Beginning balance + Acquisitions - Depreciation - Book value of assets sold = Ending Balance Sale proceeds = Book value of assets sold + Gain - Loss
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Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 18 Plant Assets, Net Beginning balance Acquisitions Depreciation Book value of assets sold Ending balance
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Computing Purchases and Sales of Investments Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 19 Investments Beginning balance + Purchases - Book value of investments sold = Ending Balance Investments Beginning balance Purchases Book value of investments sold Ending balance
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Loans and Collections Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 20 Notes Receivable Beginning balance + New Loans made - Collections = Ending Balance Notes Receivable Beginning balance New loans made Collections Ending balance
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Cash Flow Template: Financing Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 21 Cash Flows from Financing Activities +Issuance of stock -Purchase of treasury stock +Borrowing -Payment of notes and bonds payable - Payment of dividends Net cash provided by (used in) financing activities
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Computing Issuance and Payments of Long-Term Debt Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 22 Long-Term Debt (Notes payable, Bonds payable) Beginning balance + Issuance of new debt - Payment of debt = Ending Balance Long-Term Debt Beginning balance Payments of debt Issuance of new debt Ending balance
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Computing Issuance of Stock and Purchases of Treasury Stock Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 23 Common Stock Beginning balance + Issuance of new stock = Ending Balance Common Stock Beginning balance Issuance of new stock Ending balance Treasury Stock Beginning balance + Purchase of treasury stock = Ending Balance Treasury Stock Beginning balance Ending balance Purchase of treasury stock
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Computing Dividends Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 24 Retained Earnings Beginning balance + Net income - Dividends declared = Ending Balance Retained Earnings Beginning balance Dividends declared Net income Ending balance
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Noncash Investing and Financing Activities Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 25 Noncash investing and financing activities: Acquisition of building by issuing common stock $$$$ Acquisition of land by issuing note payable $$$$ Payment of long-term debt by issuing stock $$$$ Bonds converted into common stock $$$$ Stock dividends distributed $$$$ Total noncash investing and financing activities $$$$$
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Exercise 12-20A Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 26 December 31, 20122011 Current assets: Cash $125,000$50,800 Accounts receivable 41,00057,000 Inventory 94,00073,000 Prepaid expenses 9,2008,700 Current liabilities: Accounts payable $32,000$18,000 Accrued liabilities 82,00057,000
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Exercise 12-20A Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 27 December 31, 20122011 Current assets:Change Cash $125,000$50,800 Accounts receivable 41,00057,000 Inventory 94,00073,000 Prepaid expenses 9,2008,700 Current liabilities: Accounts payable $32,000$18,000 Accrued liabilities 82,00057,000
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Exercise 12-20A Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 28 Cash Flows From Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: + Depreciation expense + Decrease in accounts receivable - Increase in inventory - Increase in prepaid expenses + Increase in accounts payable + Increase in accrued liabilities = Net cash provided by operating activities
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Exercise 12-20A Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 29 Cash Flows from Investing Activities +Sales of land -Purchases of plant assets =Net cash used for investing activities Cash Flows from Financing Activities +Issuance of common stock -Payment of note payable -Payment of dividends =Net cash provided by financing activities
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Exercise 12-20A Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall. 30 Cash Flows from Investing Activities +Sales of land -Purchases of plant assets =Net cash used for investing activities Cash Flows from Financing Activities +Issuance of common stock -Payment of note payable -Payment of dividends =Net cash provided by financing activities Net increase in cash Cash balance, December 31, 2011 Cash balance, December 31, 2012 Net cash provided by operating activities
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Exercise 12-20A Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 31 Non-cash Investing & Financing Activities Acquisition of plant assets by signing note payable
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Prepare a statement of cash flows by the direct method 32 Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall.
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The Direct Method Preferred by the Financial Accounting Standards Board ▫Provides clearer information about the sources and uses of cash Very few companies use ▫Takes more computations Only affects operating activities 33 Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall.
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Operating Cash Flows: Direct Method Receipts: ▫Collections from customers ▫Interest and dividends Payments ▫To suppliers ▫To employees ▫For interest and income taxes 34 Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall.
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Computing Operating Cash Flows Copyright ©2012 Pearson Education Inc. Publishing as Prentice Hall. 35 Receipts Income Statement AccountBalance Sheet Account From CustomersSales revenue+ Decrease in Accounts Receivable - Increase in Accounts Receivable Of interestInterest revenue+ Decrease in Interest Receivable - Increase in Interest Receivable
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Computing Operating Cash Flows Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 36 Payments Income Statement AccountBalance Sheet Account To suppliersCost of goods sold + Increase in Inventory+ Decrease in Accounts Payable - Decrease in Inventory- Increase in Accounts Payable Operating expenses + Increase in Prepaids+ Decrease in Accrued Liabilities - Decrease in Prepaids- Increase in Accrued Liabilities To employees Salary expense + Decrease in Salary Payable - Increase in Salary Payable
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Computing Operating Cash Flows Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall. 37 Payments Income Statement AccountBalance Sheet Account For interestInterest expense + Decrease in Interest Payable - Increase in Interest Payable For income taxes Income tax expense + Decrease in Income Tax Payable - Increase in Income Tax Payable
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38 Copyright © 2012 Pearson Education Inc. Publishing as Prentice Hall.
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