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Statement of Cash Flows

Statement of Cash Flows. Sid Glandon, DBA, CPA Associate Professor of Accounting. Purpose. Reports on cash inflows and outflows for an accounting period Provides information regarding ability of firm to generate cash from operations ability to maintain and expand operating capacity

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Statement of Cash Flows

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  1. Statement of Cash Flows Sid Glandon, DBA, CPA Associate Professor of Accounting

  2. Purpose • Reports on cash inflows and outflows for an accounting period • Provides information regarding • ability of firm to generate cash from operations • ability to maintain and expand operating capacity • ability to meet financial obligations and pay dividends

  3. Types of Cash Flow Activities • Cash Flows from Operating Activities • Cash Flows from Investing Activities • Cash Flows from Financing Activities

  4. Operating Activities • Receipts from revenues • Payments for expenses

  5. Investing Activities • Receipts from sale of noncurrent assets • Payments for acquisition of noncurrent assets

  6. Financing Activities • Receipts from issuance of equity and debt securities • Payments for • dividends • redemption of equity securities (treasury stock) • redemption of debt securities

  7. Noncash Investing/Financing • Supplementary schedule to the statement • Noncash Investing Activities • Acquisition of plant assets by issuing bonds or capital stock • Purchase a building through a mortgage loan • Noncash Financing Activities • Issuance of capital stock in exchange for convertible preferred stock or debt

  8. Method of Reporting Cash Flows from Operating Activities • Direct Method • Indirect Method (reconciliation method)

  9. Cash Flows from Operating Activities: Direct Method • Cash received from customers • Cash paid for inventory, labor, and services

  10. Cash Flows from Operating Activities: Indirect Method Net income • plus noncash charges to net income • plus/minus changes in current assets • plus/minus changes in current liabilities • plus/minus gains/losses on investing activities • plus/minus gains/losses on financing activities

  11. Cash Flows From Operating Activities-Indirect Method Net income (from the income statement) $ Add: Amortization + Depreciation + Changes in current assets: Increases - Decreases + Changes in current liabilities: Increases + Decreases - Gains from investing or financing - Losses from investing or financing + Net cash flows from operating activities $

  12. The Three FoolersReported as Operating Activities • Interest paid on debt • Interest received on investments • Dividends received on investments

  13. Using the Worksheet Approach • Prepare comparative balance sheets • Identify changes in cash for each account • Using income statement and T-account analysis • Spread changes in cash to appropriate columns • Reconcile balances of each type of activity

  14. Format for Operating Activities

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