Bài giảng Financial Accounting - Chapter 12: Statement of Cash Flows

4th REQUIRED GAAP Statement.Covers a period of time (like an income statement).Focuses on: Inflows of CASH Outflows of CASH201Lec12.PPTX112Statement of Cash FlowsQuestions the Statement of Cash Flow Answers:Where did the company get it’s cash?What they use the cash for?And least importantly,What was the change in the cash balance? 24 Parts of Statement of Cash FlowsIncome Statement ItemsUse Direct or Indirect method.1.Operating ActivitiesGenerally Long-Term Asset Items2.Investing ActivitiesGenerally Long-Term Liability & Equity Items3.Financing Activities3Example:If cash is received from borrowing on a note payable, that is a financing activity.If a building is purchased with cash, that is an investing activity. Noncash Activity would be purchasing a building by signing a note payable.GAAP Rule: If a company trades or borrows in an investing or financing activity but doesn’t use only cash, report these activities in either a separate schedule at the bottom of the statement of cash flows or in the footnotes to the financial statements.4.Significant Noncash Activities4Net Income Per income stmt (Accrual basis) xxx + or - Adjustments (Convert to cash basis) xxxNet Cash from Operating Activities xxx Called INDIRECT METHOD Cash receipts from customers xxx less Cash payments: suppliers xxx operating expenses xxx taxes, interest xxx -xxxNet Cash from Operating Activities xxx Called DIRECT METHOD SAME AMOUNTFORMAT - 3 main parts plus schedule52 - Cash from INVESTING activities: Buy or sell PP&E. xxx Buy or sell OTHER company’s stock. xxx Lend Money, Receive repayments. xxx xxx3 - Cash from FINANCING activities: Borrow money, pay back debt. xxx Buy or sell your OWN stock. xxx Pay dividends. xxx xxx NET INCREASE (DECREASE) IN CASH XXXCash at Beginning of Year (On balance sheet) + XXXCash at End of Year (On balance sheet) XXXDON’T FORGET SIGNIFICANT NON-CASH SCHEDULE 61 - Accrual to Cash conversion. Assume: Sales (all on credit) $100,000 Expenses -60,000 Net Income $40,000 and a) Beginning A/R = $0. Ending A/R = $10,000. Cash Collected from sales? 7EXAMPLES: Operating activities adjustments.Accounts Receivable1/1/014 Balance 0 Sales revenue 100,000Receipts from customers 90,00012/31/14 Balance 10,000 b) Beginning A/R = $10,000. Ending A/R = $0. Cash Collected from sales?8EXAMPLES: Operating activities adjustments.Accounts Receivable1/1/014 Balance 10,000 Sales revenue 100,000Receipts from customers 110,00012/31/14 Balance 0 c) Beginning A/R = $10,000. Ending A/R = $15,000. Cash Collected from sales?9EXAMPLES: Operating activities adjustments.Accounts Receivable1/1/014 Balance 10,000 Sales revenue 100,000Receipts from customers 95,00012/31/14 Balance 15,000 For c) Statement of Cash Flows showsOperating Activities: Net income 40,000 less Increase in A/R **( 5,000)Cash from Operating Activities 35,00010** $100,000 sales versus $95,000 cash collected!If DIRECT method: Operating Activities: Receipts from customers: 95,000 Payments to vendors (60,000) Cash from Operating 35,0002 - Accrual to Cash conversion VARIATION: What if beginning A/P = $5,000, Ending A/P = $15,000. Cash paid for $60,000 of expenses?11Result: Add $10,000 to net income since expenses recorded $60,000 are greater than cash paid $50,000.EXAMPLES: Operating activities adjustments.Accounts Payable1/1/014 Balance 5,000 items bought 60,000Payments of cash made 50,00012/31/14 Balance 15,000 Decreases in current liabilitiesOperating activities Indirect method rules:Decreases in current assetsAdjust net income up12Increases in current liabilitiesIncreases in current assetsAdjust net inc downAdjust net inc downAdjust net income upReview changes in current asset and liability balances. 3 - Noncash revenues or expenses: Assume the following: Cash Revenues 100,000 Cash Expenses -90,000 Depreciation Exp -50,000 Net Loss (40,000) What is Cash Flow? Statement of cash flows: Net income (loss) (40,000) + Depreciation 50,000 Cash from Operations 10,000If DIRECT method: Omit any mention of non-cash expenses! Cash Revenues 100,000 Cash Expenses 90,000 Net cash flow 10,00013EXAMPLES: Operating activities adjustments.To arrive at operating activities cash flows Addback non-cash expenses such as: Depreciation Amortization Loss on sale of assets (Also subtract gains.)14Additional Indirect method rules:Example - loss:Sell asset with book value of $10,000 for $6,000 cash.($4,000) loss recordedWhat is cash flow?Review changes in long-term assets, liabilities and equity over the year. - If change used or generated cash, then put on statement of cash flows. - If cash not involved, do nothing unless it’s a significant exchange. Then put on supporting schedule. Investing and Financing Procedures:154 - Examine all Non-current assets and liabilities beginning and ending balances. Assume selected balances are: Beginning Ending Long term assets: Land 100,000 115,000 Long term liabilities: N/P 200,000 175,000 Equity: Common Stock 500,000 600,000Investigate and determine 3 things:How did they change? Cash paid or received ?If no cash involved, significant exchange?Investing or financing? **Note no difference if DIRECT method used. Direct/indirect affects only operating activities section.16EXAMPLES: Investing and FinancingEXAMPLE: B A L A N C E S H E E T 2015 2014 Cash 1,000 1,500 A/R 4,000 5,000 Inventory 9,500 8,000 Prepaid Insurance 1,500 0 Land 10,000 0 Building 60,000 50,000 Accum Depr (19,500) (28,000) Total Assets 66,500 36,500 A/P 6,000 2,000 Unearned Revenue 3,500 7,000 Note Payable 10,000 0 Common Stock ( $1 Par) 1,500 1,000 Paid In Capital Excess Par 24,500 15,000 Retained Earnings 21,000 11,500 Total Liabs & Equity 66,500 36,50017EXAMPLE: INCOME STATEMENT for year ended 12/31/15 Other data:Land was bought by signing a noteOld building which cost $25,000, accumulated of $15,000, was sold for $9,000 cashNew building was bought for $35,000 cashStock was issued for $10,000 cashCash dividends paid were $3,00018 Sales 100,000 - CGS -60,000 Gross Profit 40,000 - Depreciation Expense -6,500 - Other Expenses -20,000 Net Income from operations 13,500 - Loss on sale of PP&E -1,000 Net Income 12,500 EXAMPLE: Sales 100,000 - CGS -60,000 Gross Profit 40,000 - Depreciation Expense -6,500 - Other Expenses -20,000 Net Income from operations 13,500 - Loss on sale of PP&E -1,000 Net Income 12,500 CASH FROM OPERATING ACTIVITIES: NET INCOME 12,500 + Depreciation Expense 6,500 + Loss on Sale of PP&E 1,00019EXAMPLE: 2015 2014 Cash 1,000 1,500 A/R 4,000 5,000 Inventory 9,500 8,000 Prepaid Insurance 1,500 0 Land 10,000 0 Building 60,000 50,000 Accum Depr (19,500) (28,000) Total Assets 66,500 36,500 A/P 6,000 2,000 Unearned Revenue 3,500 7,000 Note Payable 10,000 0 Common Stock ( $1 Par) 1,500 1,000 Paid In Capital Excess Par 24,500 15,000 Retained Earnings 21,000 11,500 Total Liabs & Equity 66,500 36,500 CASH FROM OPERATING ACTIVITIES: NET INCOME 12,500 + Depreciation Expense 6,500 + Loss on Sale of PP&E 1,000 + Decrease in A/R 1,000 - Increase in Inventory ( 1,500) - Increase in Prepaid Insurance ( 1,500)20EXAMPLE: 2015 2014 Cash 1,000 1,500 A/R 4,000 5,000 Inventory 9,500 8,000 Prepaid Insurance 1,500 0 Land 10,000 0 Building 60,000 50,000 Accum Depr (19,500) (28,000) Total Assets 66,500 36,500 A/P 6,000 2,000 Unearned Revenue 3,500 7,000 Note Payable 10,000 0 Common Stock ( $1 Par) 1,500 1,000 Paid In Capital Excess Par 24,500 15,000 Retained Earnings 21,000 11,500 Total Liabs & Equity 66,500 36,500 CASH FROM OPERATING ACTIVITIES: NET INCOME 12,500 + Depreciation Expense 6,500 + Loss on Sale of PP&E 1,000 + Decrease in A/R 1,000 - Increase in Inventory ( 1,500) - Increase in Prepaid Insurance ( 1,500) 21 + Increase in A/P 4,000 - Decrease in Unearned Revenue ( 3,500) Net Cash From Operating 18,500EXAMPLE: INVESTING & FINANCING activities. Analyze all noncurrent accounts 2015 2014 Land 10,000 0 Building 60,000 50,000 Accum Depr ( 19,500) ( 28,000) N/P 10,000 0  Common Stock ( $1 Par) 1,500 1,000 Paid In Capital Excess Par 24,500 15,000 Retained Earnings 21,000 11,500 LAND: Increased $10,000. Other data - land was bought by signing a note. Other than cash > Significant non-cash for schedule.AllNon -currentaccounts2235000Buy new building for $35,000 cash25000 15000 Sell old building for $9,000 cashBuilding: Increased $10,000. Accum Depr: Decreased $8,500.6500Depreciation Expense2800019500BuildingAccum Depr5000060000EXAMPLE: INVESTING & FINANCING activities. Analyze all noncurrent accounts 2015 2014 Land 10,000 0 Building 60,000 50,000 Accum Depr ( 19,500) ( 28,000) N/P 10,000 0  Common Stock ( $1 Par) 1,500 1,000 Paid In Capital Excess Par 24,500 15,000 Retained Earnings 21,000 11,50023N/P: Increased $10,000. Relates to land purchase discussed earlier.EXAMPLE: INVESTING & FINANCING activities. Analyze all noncurrent accounts 2015 2014 Land 10,000 0 Building 60,000 50,000 Accum Depr ( 19,500) ( 28,000) N/P 10,000 0  Common Stock ( $1 Par) 1,500 1,000 Paid In Capital Excess Par 24,500 15,000 Retained Earnings 21,000 11,500 24Common Stock: Increased $500. Paid In Capital: Increased $9,500.Other data – Stock was issued for $10,000 cash so 500 shares must have been issued for $20 per share.Financing Activities: $10,000 inflow.EXAMPLE: INVESTING & FINANCING activities. Analyze all noncurrent accounts 2015 2014 Land 10,000 0 Building 60,000 50,000 Accum Depr ( 19,500) ( 28,000) N/P 10,000 0  Common Stock ( $1 Par) 1,500 1,000 Paid In Capital Excess Par 24,500 15,000 Retained Earnings 21,000 11,5002530003,000 of cash dividends were paid.Retained Earnings: Increased $9,500. Retained Earnings115002100012500 = Net IncomeEXAMPLE: INVESTING & FINANCING activities. Analyze all noncurrent accounts 2015 2014 Land 10,000 0 Building 60,000 50,000 Accum Depr ( 19,500) ( 28,000) N/P 10,000 0  Common Stock ( $1 Par) 1,500 1,000 Paid In Capital Excess Par 24,500 15,000 Retained Earnings 21,000 11,500 26CASH FROM OPERATING ACTIVITIES: NET INCOME 12,500 + Depreciation Expense 6,500 + Loss on Sale of PP&E 1,000 + Decrease in A/R 1,000 - Increase in Inventory ( 1,500) - Increase in Prepaid Insurance ( 1,500) + Increase in A/P 4,000 - Decrease in Unearned Revenue ( 3,500) Net Cash From Operating 18,500 CASH FROM INVESTNG ACTIVITIES: Proceeds from building sale 9,000 Purchase of building (35,000) Net Cash From Investing (26,000) CASH FROM FINANCING ACTIVITIES: Proceeds from stock issuance 10,000 Payment of Dividends ( 3,000) Net Cash From Financing 7,000 NET DECREASE IN CASH ( 500) Cash at beginning of year 1,500 Cash at end of year 1,00027SCHEDULE OF SIGNIFICANT NON-CASH EXCHANGES: Land was obtained by signing a $10,000 note payable.28Cash Provided By Operations – Capital Expenditures – Dividends Paid Free Cash Flow Considered excess cash available after spending to maintain operations and satisfy shareholders.Free Cash Flow Ratio29Cash provided by operationsAverage current liabilitiesProbably better than current ratio in assessing liquidity.Replace denominator with Total Liabilities to evaluate solvency.30(Current) Cash Debt Coverage Ratio