REPORTING THE STATEMENT OF CASH FLOWS

Receipts , payments

To report the major items comprising cash and cash during a period

operating, investing, financing

Separately classifies cash into _______, ______, and _______ activities

equivalents

Cash includes cash and cash _____

Cash equivalents

Must be readily convertible to a known amount of cash

 Must be sufficiently close to maturity so its market value is unaffected by interest rate changes

Operating Activities

Include cash effects of transactions and events that determine net income

inflows

Operating Activities:

Cash ______ from cash sales, collections on credit sales, dividends and interest

outflows 

Operating Activities:

Cash _____ from payments to suppliers, to employees for wages, lenders for interest, taxes paid

Investing Activities

Include the purchase and sale of long-term assets, the purchase and sale of short-term

inflows

Investing Activities:

Cash ______ from selling assets, equity investments, debt investments, and collecting principal on loans

outflows

Investing Activites:

Cash _____ from purchase of assets, equity investments, debt investments, and making loans

Financing Activities

Include obtaining cash from issuing debt and repaying the amounts borrowed (liabilities), and obtaining cash from or distributing cash to owners  (equity)

inflows

Cash _____ from issuing its own equity securities, bonds, notes, liabilities

outflows

Cash _____ to pay dividends, purchase treasury stock, repay loans, and cover withdrawals by owners

Noncash Investing and Financing Activities

Activities that Do Not affect cash receipts or cash payments but are important enough to be disclosed at the bottom of the SCF or in a note to the financial statements

Preparing the Statement of Cash Flows – Steps

1.              Compute the net increase or decrease in cash

2.              Compute the net cash from operating activities

3.              Compute the net cash from investing activities

4.              Compute the net cash from financing activities

5.              ________ and report beginning and ending cash balances

Information Sources to Prepare the Statement of Cash Flows

1.              comparative balance sheets

2.              current income statement

3.              other information

Separately

______ lists each major item or class of operating cash receipt and cash payment

Direct Method

1.              Separately lists each major item or class of operating cash receipt and cash payment

2.              Operating cash receipts include cash received from customers, interest, and dividends

3.              Operating cash payments include payments for merchandise, wages, interest, and taxes

4.              Individual accrual basis income statement items must be adjusted to a cash basis

5.              Is the method recommended by FASB but is used less than the indirect method

6.              Must also provide a reconciliation of net income to net cash from operating activities (which is the indirect method)

net income , adjust

Report ______ and then ____ it for items necessary to give us net cash provided (used) by operating activities

add

items to ___ as adjustments include noncash expenses (depreciation), decreases in current assets, increases in current liabilities, and losses

subtract

Items to _____ as adjustments include increases in current assets, decreases in current liabilities, and gains

Is the most widely used method

Net income

ncome Statement  items   not affecting  cash

+          Depreciation, Depletion, and Amortization

+          Loss on disposal of long-term asset

+          Loss on retirement of debt

-           Gain on disposal of long-term asset

-                 Gain on retirement of debt

+          Accrued expenses

-           Accrued revenues

Changes in current assets and current liabilities

+          Decrease in noncash current asset

  -           Increase in noncash current asset

+          Increase in current liability

-           Decrease in current liability

= Net cash provided (used) by operating activities

Cash Flows From Investing Activities

A.             Identify changes in investing related accounts (plant assets, intangible assets, investments, notes receivable)

B.              Explain these changes using reconstruction analysis

C.              Report cash flow effects

D.             Figured the same under the direct or the indirect method

Cash Flows From Financing Activities

A.             Identify changes in financing-related accounts (long-term debt, notes payable, bonds payable, equity accounts, stock accounts, retained earnings)

B.              Explain these changes using reconstruction analysis

C.              Report cash flow effects

D.         Figured the same under the direct or the indirect method