ACCY202, Chapter 12 Notes
ACCY202, Chapter 12 Notes ACCY 202
Popular in Introduction to Accounting Principles II
Popular in Accounting
This 3 page Class Notes was uploaded by Mallory McClurg on Friday September 2, 2016. The Class Notes belongs to ACCY 202 at University of Mississippi taught by Barton in Fall 2016. Since its upload, it has received 43 views. For similar materials see Introduction to Accounting Principles II in Accounting at University of Mississippi.
Reviews for ACCY202, Chapter 12 Notes
Report this Material
What is Karma?
Karma is the currency of StudySoup.
Date Created: 09/02/16
ACCY 202: Reporting the Statement of Cash Flows (Ch. 12) 09/03/2016 ▯ Purpose of the statement of cash flows: How a company receives money Where a company spends its money What explains a change in cash balance Is there a cash shortage? Why? ▯ Measurement of cash flows: Cash equivalents are… o Short term, highly liquid investments o readily convertible into cash o sufficiently close to maturity so that market value is unaffected by interest rate changes ▯ Classification of cash flows: The statement of cash flows includes three sections: o Operating activities – day-to-day cash receipts and disbursements that determine net income (net income/current assets/current liabilities) o Investing activities – cash receipts and disbursements generally related to the purchase and sale of long-term assets o Financing activities – cash receipts and disbursements generally related to long-term liabilities and equity (long-term debt and equity) ▯ To prepare a cash flow statement, you must have… Comparative balance sheets Current income statement Any additional relevant information ▯ Preparing the statement of cash flows: a. Compute net increase or decrease in cash b. Compute net cash from operating activities c. Compute net cash from investing activities d. Compute net cash from financing activities e. Prove and report beginning and ending cash balances ▯ Operating activities – Indirect Method Start with net income Reconcile changes in noncash current assets and current liabilities Add noncash expenses like depreciation and amortization Add losses; subtract gains ▯ Adjustments for changes in current assets and liabilities for operating cash flows: Increase Decrease Current assets Subtract from net Add to net income income Current liabilities Add to net income Subtract from net income ▯ Recording reconciliation for operating activities: (EX 12-4) Cash flows from operating activities Net income $481,540 Adjustments to reconcile net income to operating cash flow Depreciation expense 44,200 Amortization expense – Patents 4,200 Gain on sale of equipment (6,200) A/R increase (30,500) Inventory increase (25,000) A/P decrease (12,500) Salaries payable decrease 13,500 Net cash provided by operating activities $452,240 ▯ ▯ Investing (equipment) activities – Indirect Method Add the proceeds from the sales of property, plant, and equipment Deduct the purchases of property, plant, and equipment ▯ Recording reconciliation for investing activities: (pg 550) Cash flows from investing activities Cash proceeds received from sale of equipment 6,975 Cash paid for equipment (10,500) Net cash provided by investing opportunities (3,525) ▯ Often times, in the “additional information” section of an exercise, you’ll need to plug in some numbers to get the sum of cash proceeds on the sale of equipment, plant, and property. Here’s how in 3 steps: ▯ 1. Accumulated Depreciation Prior year acc. dep. balance Amount change of Depreciation expense acc. dep. between the from income two years (-/+) statement Current year acc. dep. ▯ 2. (original cost of asset) – (amount change of acc. dep. between the two years) = book value ▯ 3. (gain or loss on sale) + book value = cash proceeds on sale ▯ ▯ Financing (debt & equity) activities – Indirect Method Add proceeds from issuing notes payable Deduct the principal of repaid notes Add the proceeds on sale of common stock Deduct the purchase of treasury stock Deduct dividends paid to stockholders ▯ Recording reconciliation for financial activities: (EX 12-11) Cash flows from financial activities Cash paid to retire notes payable (30,000) Cash proceeds from issuance of common stock 60,000 Cash dividends paid (90,310) Net cash provided by financial activities ($60,310) ▯ ▯ End of Statement of Cash Flows: Net increase/decrease in cash Beginning cash balance Ending cash balance