ACCN 2010 Chapter 12 Notes
ACCN 2010 Chapter 12 Notes ACCN 2010
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This 2 page Class Notes was uploaded by Tara Watkins on Monday April 11, 2016. The Class Notes belongs to ACCN 2010 at Tulane University taught by Christine Smith in Spring 2016. Since its upload, it has received 48 views. For similar materials see Financial Accounting in Accounting at Tulane University.
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Date Created: 04/11/16
Accounting 2010 Chapter 12 Notes Cash is very important for companies because: o Credit is limited (ex. credit limits on credit cards) o With a large amount of cash, it can pay its bills and operate normally o With a small amount of cash, it might need to take out loans, issue stock, or use a credit account in order to pay bills (not a sustainable long-term option) Statement of Cash Flows o Is used by many people to determine the company’s liquidity, solvency and financial state o Informs users: 1. Where the cash came from 2. What the cash was used for 3. What the change in the cash balance was o Is divided into the three different kinds of activities that a company can take part in: Operating activities Cash flow from operations Used to determine net income Ex. net income, (Accounts Receivable and Accounts Payable must be accounted for as well because they are already included in net income), other activities necessary for operations Investing activities Cash flow related to acquisition, sale, retirement, or disposal of long- term assets and other non-operating investments Ex. buying equipment, buying land, buying a building, retiring equipment, selling equipment Financing activities Cash flow related to transactions with non-trade creditors (such as financial institutions) Ex. bank loans Creating a Statement of Cash Flow o To prepare a Statement of Cash Flow, you will first need: Comparative Balance Sheets (current and prior period’s balance sheets) Income Statement Selected transaction data o Then you must choose one of two preparation methods for the operating section 1. Direct method (Income Statement method) – deducts operating cash disbursements from operating cash receipts 2. Indirect method (Reconciliation method) – adjusts net income for items that did not actually affect cash Accounts for the accrual basis of accounting used in calculating net income Easier and cheaper than the direct method Ex. deduct revenue that did not involve cash, add back expenses that were not related to cash o Ending balance should equal the amount of cash listed on the balance sheet o Example Format (values made up to show where addition/subtraction would occur): - Bolded and underlined words will change depending on whether the value is + or - - “Provided by” is used for a positive value while “used in” is for a negative value Company Name Statement of Cash Flows For the Year Ended December 31, 2015 Operating Activities Net Income $10,000 Adjustments made to reconcile net income to cash provided by/used in operating activities Increase in Accounts Receivable < 2,000 > Increase in Accounts Payable 1,350 < 650 > Net Cash provided by operating activities 9,350 Investing Activities Purchase of Land < 2,500 > Purchase of Equipment < 3,000 > < 5,500 > Net Cash provided by investing activities 3,850 Financing Activities Issuance of note receivable (loan) 6,000 Net Cash provided by investing activities 6,000 Net increase in cash 9,850 Beginning Balance in Cash (from Balance Sheet of prior year) XXXX Ending Balance in Cash (net increase + beginning balance 9,850 + XXXX should match current balance sheet cash value)
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