Chapter 23 Class Notes
Chapter 23 Class Notes Acc 302
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This 4 page Class Notes was uploaded by Lauren95 on Monday April 25, 2016. The Class Notes belongs to Acc 302 at Pace University taught by Reisig in Spring 2016. Since its upload, it has received 7 views. For similar materials see Intermediate Accounting II in Accounting at Pace University.
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Date Created: 04/25/16
Chapter 23: Statement of Cash Flows Four basic statements o (1) Balance Sheet o (2) Income Statement o (3) Income Statement o (4) Statement of Cash Flows Those four statements are required. Cash Flows o Covers a period of time that coincides with the income statements. o More information of statement of cash flows about the movement of money. Provides information about cash going in and out of the company. o Based on cash more so than the accrual of accounting Everyone gets the concept of cash. o Two Methods: (1) Direct Method (2) Indirect Method Direct Method o Lists all sources of cash and how it came into the company o Collection from sales o Cash from bank loan o Then show how cash was spent Cash spent in repaying a loan. o Specific information o Almost like keeping two books o Preferred method Indirect Method o Companies can use this method. Most companies do use this method even though the direct method is recommended. o Both GAAP o This method is easier to do than the other method. o 90% of companies use the indirect method. o Shows how cash changed from beginning to the end of the year. Three Major Sections: o (1) Cash from Operations o (2) Cash from Investing Activities o (3) Cash from Finance Activities Shows net change in cash Reconcile to balance sheet number. o Bridge from one statement to another. Cash from Operations: o Three types of adjustments: (1) Non cash revenue and expenses Ex: Depreciation, patents, discount on bonds, premium on bonds. Add non-cash expenses to net income Subtract non-cash revenue from net income Depreciation Expense – Did not cost us cash o Non-Cash Expense (+) Amortization Expense o Non-Cash Expense (+) Amortization Disc – B/P o Non-Cash Expense (+) Amortization Premium – B/P o Non-Cash Income (-) (2) Change in Current Asset/Current Lability Accounts (year to year) Add or subtract to/from net income Increase in Current Asset (-) Decrease in Current Asset (+) Increase in Current Liability (+) Decrease in Current Liability (-) o A/P; Interest Payable; Salaries Payable etc. A/R is an example A/R 20,000 Sales 20,000 Cash 15000 A/R 15000 *Subtract 5000 from net income. (20,000-15000) (3) Gains and Losses on Sales of assets (non-operating) Adjustments to net income Sale of assets Gains are in both income and investing sections. (Adjust net income) Gain on Sale (-) Loss on Sale (+) Investing: (Long term assets) o Example: Land o Changes in noncurrent assets o In terms of either purchasing or selling o Purchase (-) o Sold (+) Financing Activities: (Long term liabilities or stock equity) o Changes in long term liability and stock holders’ equity. o People give us cash for bonds o Dividends Equity o Issuing B/P (+) o Repaying L/T N/P (-) o Issue C/S (+) o Purchase T/S (-) o Pay Dividends (-) Don’t compare gross accounts receivable only compare after allowance is taken out. Cash X A/R 10,000 Allowance (2000) 8000 Non Cash Exchange: Land 100 N/P 100 o Report on statement of cash flows o Report by having (1) a foot note or (2) showing both halves of the equation Cash 100 *Finance Section N/P 100 Land 100 *Investing Section Cash 100 Name of Company Statement of Cash Flows Year Ended 12/31/2105 Operations: Net Income XX Adjustments: Non-Cash Rev/Exp (+)(-) Changes in Current Assets or Current Liabilities (+)(-) Gains/Losses (+)(-) Total Non-Cash Adjustments Investing: Changes in Non-Current Assets Total Non-Current Assets Finance: Changes in Long Term Liabilities and St Equity Total Long Term Liabilites Net Increase(Decrease) in Cash XX Cash bal, 1/1 X Cash bal. 12/31 XX *Rest of the statement results in the total “Net Increase (Decrease) in Cash *Cash bal 1/1 – Last year’s balance Example:
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