1. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 18-1 Understanding Cash Flow Analysis

2. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 2 LESSON 18-1 page 531 CASH FLOW ANALYSIS Cash flow analysis helps owners, creditors, and other interested parties: 1.Determine a company’s potential to produce cash in the future. 2.Judge a company’s ability to pay bills and repay debts. 3.Explain changes in the cash account balance. 4.Evaluate a company’s investment and equity transactions.

3. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 3 LESSON 18-1 STATEMENT OF CASH FLOWS page 532

4. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 4 LESSON 18-1 page 533 Revenue recognized at the time it is earned. Revenues$25,000.00 Expenses0.00 Net Income$25,000.00 Revenue recognized at the time cash is received. Revenues$ 0.00 Expenses0.00 Net Income$ 0.00 TIMING OF REVENUE RECOGNITION Accrual Basis vs. Cash Basis

5. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 5 LESSON 18-1 page 533 Expense recognized at the time it is incurred. Revenues$25,000.00 Expenses3,000.00 Net Income$22,000.00 Expense recognized at the time cash is paid. Revenues$ 0.00 Expenses0.00 Net Income$ 0.00 TIMING OF EXPENSE RECOGNITION Accrual Basis vs. Cash Basis

6. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 6 LESSON 18-1 page 534 CASH FLOWS FROM OPERATING ACTIVITIES Cash Inflows (sources of cash) Cash sales of merchandise Cash sales of services Interest income Dividends received from the ownership of stock in other companies Cash received from charge customers Cash Outflows (uses of cash) Advertising Credit card fees Insurance expense Interest payments Payroll expenses Property tax Utility expenses Income tax

7. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 7 LESSON 18-1 page 534 CASH FLOWS FROM INVESTING ACTIVITIES Cash Inflows (sources of cash) Sale of property Sale of equipment Sale of building Collections of long-term loans Cash Outflows (uses of cash) Purchase of land Purchase of equipment Purchase of building Purchase of patents or special licenses Loans to other companies Purchase of stock in other companies Purchase of bonds in other companies

8. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 LESSON 18-1 page 535 CASH FLOWS FROM FINANCING ACTIVITIES Cash Inflows (sources of cash) Capital stock issue Mortgage issue Bond issue Long-term loans Cash Outflows (uses of cash) Purchase of treasury stock Payment of cash dividends Repayment of land/note principal Retirement of bond principal

9. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 9 LESSON 18-1 page 536 TERMS REVIEW accrual basis of accounting cash basis of accounting cash flows statement of cash flows operating activities investing activities financing activities