Ch.12-Statement of Cash Flows

Operating Activities

Income statement items

Investing activities

Changes in investments & long-term assets

Financing Activities

Changes in long-term liabilities & stockholders' equity

Operating activities cash inflows

(1) Sales of goods and services and (2) interest received & dividends received

Operating activities cash outflows

(1)suppliers for inventory, (2) employees for wages, (3) government for taxes, and (4) lenders for interest

Investing activities cash inflows

(1) Sale of PP&E and (2) sale of investments in debt or equity securities and other entities

Investing activities cash outflows

(1)Purchase of PP&E and (2) purchase of investments in debt or equity securities of other entities

Financing activities cash inflows

(1) Sale of common & preferred stock and (2) Issuance of debt(bonds & notes)

Financing activities cash outflows

(1) stockholders as dividends and (2) to redeem long-term debt or reacquire capital stock(treasury stock)

What are some significant noncash activities?

(1) Direct Issuance of Common Stock, (2) Conversion of bonds into common stock, (3) Issuance of debt to purchase assets, and (4) exchanges of plant assets

What is the format of the statement of cash flows?

(1) Cash flows from operating activities, (2) Cash flows from investing activities, (3) Cash flows from financing activities, and (4) Noncash investing & financing activities

What goes under cash flows from operating activities in the CFS?

(1) List of individual items:debit and (2)Net cash provided by financing activities: credit

What goes under cash flows from investing activities in the CFS?

(1) List of individual inflows & outflows: debit and (2) net cash provided(used) by investing activities: credit

What goes under cash flows from financing activities in the CFS?

(1) List of individual inflows & outflows: debit and (2) net cash provided by financing activities: credit

What goes under non cash investing & financing activities in the CFS?

List of individual non cash-transactions:credit

Why do companies favor the indirect method?

(1) Easier & less costly to prepare and (2) Focuses on differences between net income & net cash flow from operating activities

Net Income to Net Cost: Non-cash charges and depreciation expense

Add

Net Income to Net Cost: Non-cash charges and amortization expense

add

Net Income to Net Cost: Loss on disposal of plant assets

add

Net Income to Net Cost: Gain on disposal of plan assets

deduct

Net Income to Net Cost: Increase in current Asset accounts

Deduct

Net Income to Net Cost: Decrease in current asset accounts

Add

Net Income to Net Cost: Increase in current liability accounts

Add

Net Income to Net Cost: Decrease in current liability accounts

Deduct

Free Cash Flow Equation

Free Cash Flow = Net Cash Provided by Operating Activities - Capital Expenditures - Cash Dividends