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Chapter 6

Chapter 6. Financial Statements. 6-1 Multi-Step vs. Single-Step Income Statement. a Sales - Sales returns - Sales Discounts b Net sales - Cost of goods sold c Gross profit - Operating expenses d Income from operations + Other revenue/gains - other expenses/losses.

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Chapter 6

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  1. Chapter 6 Financial Statements

  2. 6-1 Multi-Step vs. Single-Step Income Statement a Sales - Sales returns - Sales Discounts b Net sales - Cost of goods sold c Gross profit - Operating expenses d Income from operations + Other revenue/gains - other expenses/losses

  3. 6-2 Typical Receipts and Payments Classified by Activity Operating activities Cash inflows: From sale of goods or services. From returns on loans (interest) and on equity securities (dividends). Cash outflows: To suppliers for inventory. To employees for services. To government for taxes. To lenders for interest. To others for expenses. Investing activities Cash inflows: From sale of property, plant, and equipment. From sale of debt or equity securities of other entities. From collection of principal on loans to other entities. Cash outflows: To purchase property, plant, and equipment. To purchase debt or equity securities of other entities. To make loans to other entities. Financing activities Cash inflows: From sale of equity securities (company’s own stock). From issuance of debt (bonds and notes). Cash outflows: To stockholders as dividends. To redeem long-term debt or reacquire capital stock.

  4. 6-3 Information Sources for Activities

  5. 6-4 Format of the Statement of Cash Flows

  6. 6-5 Converting Net Income to Net Cash Provided (Used) by Operating Activities OR

  7. 6-6 Operating Activities – Indirect Method Adjustments for Noncash Items Adjustments to convert net income to net cash provided by operating activities. All noncash expenses are added to net income, and all noncash revenues are subtracted from net income.

  8. 6-7 Operating Activities – Indirect Method Adjustments For Current Assets and Liabilities Adjustments to convert net income to net cash provided by operating activities. All changes in current assets are handled in a similar manner and all changes in current liabilities are handled in a similar manner, but the adjustments are exactly the opposite.

  9. 6-8 Cash Flows from Operating Activities – Indirect Method Problem Data Using the data provided, prepare the cash flows from operating activities section of the statement of cash flows using the indirect method.

  10. 6-8 Cash Flows from Operating Activities – Indirect Method (continued)

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