21 - 1 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Statement of Cash Flows

Chapter 21
21 - 2 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Understanding the purpose
of a statement of cash flows.
Learning Objective 1
21 - 3 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 21-1 (Statement of
Cash Flows: Indirect Method)
What are the required
financial statements?
Income statement
Statement of retained earnings
Balance sheet
Statement of cash flows
21 - 4 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
The statement of cash flows summarizes
the sources and uses of cash by a
company during an accounting period.
Learning Unit 21-1 (Statement of
Cash Flows: Indirect Method)
21 - 5 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 21-1 (Statement of
Cash Flows: Indirect Method)
The statement of cash flows
consists of three main sections:
Operating activities
Investing activities
Financing activities
A fourth classification is called noncash
investing and financing activities.
21 - 6 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Prepare the Operating Activities
section of the statement of cash
flows using the indirect method.
Learning Objective 2
21 - 7 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 21-1 (Statement of
Cash Flows: Indirect Method)
Accrual net income from
operating activities is
adjusted to cash net income.
Difference between indirect
and direct method applies
only to operating activities.
21 - 8 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Statement of Cash FlowIndirect Method
For Year Ended December 31, 200x
Net cash flows from operating activities:
Net income from operations $ 9,960
Add (deduct) items to convert net income
From accrual basis to cash basis:
Depreciation expense 11,000
Increase in accounts receivable (4,840)
Decrease in merchandise inventory 2,000
Increase in prepaid insurance (200)
Increase in notes payable (short term) 2,600
Decrease in accounts payable (100)
Net cash provided by operating activities $20,420
Learning Unit 21-1 (Statement of
Cash Flows: Indirect Method)
21 - 9 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Current Assets
Current Liabilities
Add to
Net Income
if this
account has:
Decreased
Increased
Learning Unit 21-1 (Statement of
Cash Flows: Indirect Method)
Increased
Decreased
Deduct from
Net Income
if this
account has:
21 - 10 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 21-1 (Statement of
Cash Flows: Indirect Method)
Sale or purchase of equipment
Cash received from sales of stocks or bonds
Cash spent to invest in other companies
Sale or purchase of land
Loaning cash to borrowers
21 - 11 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 21-1 (Statement of
Cash Flows: Indirect Method)
Issuance of long-term notes and bonds
Payment of cash dividends
Purchasing and reissuing treasury stock
Issuance of common stock
Retirement of bonds
21 - 12 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Transactions with customers, vendors,
and employees are Operating Activities.
Transactions involving the purchase or
sale of plant assets are Investing Activities.
Transactions involving creditors or
stockholders are Financing Activities.
Learning Unit 21-1 (Statement of
Cash Flows: Indirect Method)
21 - 13 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Prepare the Operating Activities
section of the statement of cash
flows using the direct method.
Learning Objective 3
21 - 14 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 21-2 (Statement of
Cash Flows: Direct Method)
The direct method determines the amount
of cash inflows and cash outflows.
It identifies the activities that
increase or decrease cash.
21 - 15 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Statement of Cash FlowsDirect Method)
For Year Ended December 31, 200x
Net cash flows from operating activities:
Cash received from customers $185,160
Cash paid for merchandise inventory ($101,500)
Cash paid for salaries (51,040)
Cash paid for insurance (7,400)
Cash paid for rent (3,600)
Cash paid for miscellaneous expenses (1,200)
Total cash paid for operating activities (164,740)
Net cash flows from operating activities $ 20,420
Learning Unit 21-2 (Statement of
Cash Flows: Direct Method)
21 - 16 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Preparing a statement
of cash flows.
Learning Objective 4
21 - 17 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
The statement of cash flows...
summarizes the changes in
the sources and uses of cash.
proves net increase
(or decrease) in cash.
Learning Unit 21-2 (Statement of
Cash Flows: Direct Method)
21 - 18 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Statement of Cash Flows
(Investing Activities)
For Year Ended December 31, 200x
Purchase of plant asset ($30,000)
Net cash used by investing activities (30,000)
Learning Unit 21-2 (Statement of
Cash Flows: Direct Method)
21 - 19 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Statement of Cash Flows
(Financing Activities)
For Year Ended December 31, 200x
Issuance of long-term note $ 8,000
Issuance of common stock 10,000
Payment of dividends (8,000)
Net cash provided by
financing activities $10,000
Learning Unit 21-2 (Statement of
Cash Flows: Direct Method)
21 - 20 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Statement of Cash Flows
For Year Ended December 31, 200x
Net cash flow from operating activities $20,420
Net cash used by investing activities (30,000)
Net cash provided by financing activities $10,000
Net increase in cash $ 420
Learning Unit 21-2 (Statement of
Cash Flows: Direct Method)
21 - 21 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
End of Chapter 21