The CASH FLOW Statement ( Statement of changes in financial position)

1. The CASH FLOW Statement(Statement of changes in financial position) Text Chapter 18, Pages 820-842, 854-857 Practice Questions: BE18-1, BE18-2, BE18-3, E18-1, E18-2 BE18-4, Be18-5, BE18-6, E18-3, E18-4, E18-5 BE18-11, E18-10, E18-11

3. 18-3- THREE MAJOR STEPS IN PREPARING THE CASH FLOW STATEMENT The difference between the beginning and ending cash balances can be easily calculated from comparative balance sheets. + or - This step involves analysing not only the current year’s income statement but also comparative balance sheets and selected additional data. XYZ Goods This step involves analysing comparative balance sheet data and selected additional information for their effects on cash. For Sale Investing Financing Step 1: Determine the net increase (decrease) in cash. Step 2: Determine net cash provided (used) by operating activities. Step 3: Determine net cash provided (used) by investing and financing activities.

4. What is a Statement of Changes in Financial Position ? The statement of changes in financial position (SCFP) is an operating statement - like the income statement. That is, it portrays activities that have occurred during a designated financial period. A SCFP summarizes the operating, financing and investing activities of a business for a period on a cash basis and cash equivalents. It explains how the cash position of a company has changed over the period. A SCFP focuses only on transactions that occur with cash or cash equivalents; this differs from what you are used to in financial accounting which is accrual based. Common accrual accounting transactions such A/P, A/R, recognized revenue that has not been collected are not cash transactions. How does the company get from one year's cash to the next year's cash?

5. OPERATING ACTIVITIES:The most important part! • begin with the NI from continuing operations on the income statement • add or subtract changes from the current non-cash accounts on the balance sheet (A/P, A/R, inventories, prepaid and accrued expenses (use year over year) • add back non-cash items from the income statement such as depreciation and amortization How does the company get from one year's cash to the next year's cash?

6. NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES(B/S: Noncash Current Assets and Current Liabilities) Adjustments to Convert Net Income to Net Cash Provided (Used) by Operating Activities Add*Deduct* Change in Current Asset Account Balance Accounts receivable Decrease Increase Inventory Decrease Increase Prepaid expenses Decrease Increase Other current assets Decrease Increase Change in Current Liability Account Balance Accounts payable Increase Decrease Accrued expenses payable Increase Decrease Other current liabilities Increase Decrease * Add (deduct) change in account balance to net income

7. NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES(I/S: Noncash Items) Adjustments to Convert Net Income to Net Cash Provided (Used) by Operating Activities Noncash Items on Income Statement Amortization (of capital assets) expense Add Amortization of bond discount to interest expense Add Amortization of bond premium to interest expense Deduct Loss on sale of asset Add Gain on sale of asset Deduct Income from long-term equity investment Deduct

10. SCFP go to excel spread sheet!

13. SCFP go to excel spread sheet!