Week 8 Notes- Chapter 12: Cash Flow Statements
Week 8 Notes- Chapter 12: Cash Flow Statements Accy 206
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This 4 page Class Notes was uploaded by Khaylian Leflore on Monday October 19, 2015. The Class Notes belongs to Accy 206 at Northern Illinois University taught by Mark Hogan in Fall 2015. Since its upload, it has received 24 views. For similar materials see Introduction to Financial Accounting in Accounting at Northern Illinois University.
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Date Created: 10/19/15
Week 8 Notes Chapter 12 Cash Flow Statements Statement of Cash Flows SCF gt Operating financing and investing activities gt SCF provides information to help assess o Entity s ability to generate future cash ows 0 Entity s ability to pay dividends and obligations 0 Reasons for difference between net income and net cash provided used by operating activities when using indirect method 0 Cash investing and financing transactions during the period Usefulness and Format gt Operating income statement items gt Investing changes in investments and long term assets gt Financing changes in long term liabilities and stockholder s equity gt Classification of cash ows 0 Operating activities In ows From sales of goods and services From interest and dividends received Out ows To lenders for interest To suppliers for inventory To government for taxes To employees for salaries To others for expenses 0 Investing activities In ows From sale of property plant equipment From sale of investments in debt or equity securities of other entities From collection of principal on loans to other entities Out ows To purchase property plant and equipment To purchase investments in debt or equity securities of other entities To make loans to other entities 0 Financing activities In ows From sale of common stock From issuance of debt bonds and notes Out ows To stockholders as dividends To redeem long term debt or reacquire capital stock 0 Significant noncash activities Direct issuance of common stock to purchase assets Conversions of bonds into common stock Direct issuance of debt to purchase assets Exchanges of plant assets Companies report these activities in either a separate schedule bottom of statement or a separate note to the financial statements 0 Format of the statement of cash ows Order of presentation operating 9 investing financing Preparing the SCF sources of info 1 Comparative balance sheets 2 Current income statement 3 Additional info 3 Major steps 1 Determine net cash used provided by converting net income from an accrual basis to a cash basis 0 Analyzing the current income statement and comparative balance sheets and selected additional data 0 Common adjustments to net income I Add back noncash eXpenses depreciation amortization or depletion expense I Deduct gains and add losses I Changes in noncash current asset and current liability accounts 0 Depreciation eXpense reduces net income but does not reduce cash Company must add it back to net income 2 Analyze changes in noncurrent assets and liability accounts and record as investing and financing activities or disclose as noncash transaction 0 Analyzing comparative balance sheet data and selected additional information for their effects on cash 3 Compare the net change in cash on the statement of cash ows with the change in the cash account reported on the balance sheet to make sure the amounts agree o The difference between the beginning and ending cash balances can be easily computed from comparative balance sheets I Direct and indirect methods Companies favor the indirect method for 2 reasons easier and less costly to prepare and it focuses on the differences between net income and net cash ow from operating activities 98 indirect 2 direct Only difference how cash ow from operations is presented CFFO in total is the same under either method and there is no difference for investing and financing