ChapterTheStatementofCashFlows

1、chapter21 the statement of cash flowsthe statement of cash flowschapter21objectives11>. define operating, investing, and financing activities.2. know the categories of inflows and outflows of cash.3. classify cash flows as operating, investing, or financing.4.explain the direct and indirect metho

2、ds for reporting operating cash flows.5.prepare a simple statement of cash flows.continued 6.use a worksheet for a statement of cash flows. 7.compute and disclose interest paid and income taxes paid. 8. identify the operating cash inflows and outflows under the direct method (appendix). 9.compute th

3、e operating cash flows under the direct method (appendix).objectivesoperating activitiesoperating activities include all transactions and other events that are not investing and financing activities.operating activities include transactions involving acquiring, selling, and delivering goods for sale

4、, as well as providing services.cash receipts from the sale of goods or services and collections of accounts receivable are typical cash inflows from operating activities.cash payments to suppliers for inventory and on account, for wages, and for taxes are examples of cash outflows from operating ac

5、tivities.investing activitiestypical investing activities include transactions involving:lending money and collecting on the loanacquiring and selling investments (both current and noncurrent)acquiring and selling property, plant, and equipment.financing activitiestypical financing activities includ

6、e transactions involving:obtaining resources from ownersdistributing returns to ownersobtaining resources from creditorsrepaying creditorsequation for change in cashincreases in cash= increases in liabilities+increases in stockholders equity+decreases in assets other than cashthis equation is based

7、on the fundamental accounting equation: a = l + seequation for change in cashdecreases in cash= decreases in liabilities+decreases in stockholders equity+increases in assets other than cashand.inflows of cash1.decreases in assets other than cash. the sale or disposal of a noncash asset causes an inf

8、low of cash.2.increases in liabilities. the issuance or other incurrence of liabilities causes an inflow of cash.3.increases in stockholders equity. net income and additional investments by owners result in an inflow of cash.outflows of cash1.increase in assets other than cash. the acquisition of no

9、ncash assets causes an outflow of cash.2.decreases in liabilities. the payment of liabilities causes an outflow of cash.3.decreases in stockholders equity. the payment of dividends and the acquisition of treasury stock are two common transactions that result in an outflow of cash. net cash flow from

10、 operating activitiesdecrease in accounts receivableincrease in accounts receivable+-or=increase in cash inflows from operating activities=sales revenuesdecrease in accrued payables and increases in inventoryincrease in accrued payables and decrease in inventory+-or=increase in cash outflows for ope

11、rating activities= net cash flow from operating activitiesexpenses (including cost of goods sold) calculation of cash flows from operating activitiessales revenueaccounts receivablebal. 9><>0 3<>0,<>0<>0<>042,<>0<>0<>0smith company made cash sales o

12、f $3<>0,<>0<>0<>0 and credit sales of $42,<>0<>0<>0. 42,<>0<>0<>0 calculation of cash flows from operating activitiessales revenueaccounts receivablebal. <>0 3<>0,<>0<>0<>042,<>0<>0<>0during t

13、he year $37,<>0<>0<>0 was collected from creditors.37,<>0<>0<>042,<>0<>0<>0 operating activitiessales revenueaccounts receivablebal. <>0 3<>0,<>0<>0<>042,<>0<>0<>0bal. 72,<>0<>0<>0

14、 42,<>0<>0<>0 bal. 5,<>0<>0<>0 37,<>0<>0<>0bal. <>0 operating activitiessales revenueaccounts receivable 3<>0,<>0<>0<>042,<>0<>0<>0bal. 72,<>0<>0<>0 42,<>0<>0<>0

15、bal. 5,<>0<>0<>0 37,<>0<>0<>0sales revenueincrease in accounts receivable=increase in cash inflows from operating activities $72,<>0<>0<>0 ? $5,<>0<>0<>0 = $67,<>0<>0<>0 operating activitiessalaries expensesala

16、ries payablebal. <>0smith company paid salaries of $13,<>0<>0<>0 and recorded salaries payable of $1,<>0<>0<>0 during the year. at year-end, the salaries expense account has a debit balance of $14,<>0<>0<>0. 13,<>0<>0<>01,

17、<>0<>0<>01,<>0<>0<>0 operating activitiessalaries expensesalaries payablebal. <>0 13,<>0<>0<>01,<>0<>0<>0bal. 14,<>0<>0<>0smith company paid salaries of $13,<>0<>0<>0 and recorded salari

18、es payable of $1,<>0<>0<>0 during the year. at year-end, the salaries expense account has a debit balance of $14,<>0<>0<>0.1,<>0<>0<>0bal. 1,<>0<>0<>0 operating activitiessalaries expensesalaries payablebal. <>0 13,<>

19、;0<>0<>01,<>0<>0<>0bal. 14,<>0<>0<>01,<>0<>0<>0bal. 1,<>0<>0<>0expenseincrease in accrued (salaries) payable=increase in cash outflows for operating activities $14,<>0<>0<>0 $1,<>0<>0<

20、;>0 = $13,<>0<>0<>0direct methodfasb statement number 95 allows a choice of the direct or indirect method to report cash flows from operations.direct methodsales revenue (cash and a/r)$7<>0,<>0<>0<>0 less:cost of goods sold (cash and a/p)$(29,<>0<

21、;>0<>0)salaries expense (cash and s/p)(13,<>0<>0<>0)depreciation expense (8,<>0<>0<>0)(5<>0,<>0<>0<>0)income before income taxes$2<>0,<>0<>0<>0income tax expense (cash) (6,<>0<>0<>0)net inc

22、ome$14,<>0<>0<>0ryan corporations income statementdirect methodcash flows from operating activities:cash inflows:cash received from customers$72,6<>0<>0 cash inflows from operating activities$72,6<>0<>0 cash outflows:cash paid to suppliers$(38,<>0<&

23、gt;0<>0)cash paid to employees(12,2<>0<>0)cash paid for income taxes (6,<>0<>0<>0)cash outflows for operating activities(56,2<>0<>0)net cash provided by operating activities$16,4<>0<>0 decrease in accounts receivable ($2,6<>0<>0

24、) + sales revenue ($7<>0,<>0<>0<>0)increase in inventory ($2,<>0<>0<>0) + decrease in accounts payable ($7,<>0<>0<>0) + cost of goods sold ($29,<>0<>0<>0).salaries expense increase in salaries payableamount paid in cash.in

25、direct methodnet cash flows from operating activities:net income$14,<>0<>0<>0 adjustments for differences between income flows and cash flows for operating activities:add:depreciation expense8,<>0<>0<>0 decrease in accounts receivable2,6<>0<>0 increase

26、 in salaries payable8<>0<>0 less:increase in inventory(2,<>0<>0<>0)decrease in accounts payable(7,<>0<>0<>0)net cash provided by operating activities$16,4<>0<>0added back since depreciation is not an outflow of cash.same amount as the direc

27、t methodprocedures for preparation of statementsteps in visual inspection method1.prepare the heading for the statement of cash flows and list the three major sections.2.calculate the net change in cash that occurred during the accounting period.3.determine the net income and list this amount as the

28、 first item in the net cash flow from operating activities section.4.calculate the increase or decrease that occurred during the accounting period in each balance sheet account (except cash).continuedsteps in visual inspection method5.determine whether the increase or decrease in each balance sheet

29、account (except cash) caused an inflow or outflow of cash and, if so, whether the cash flow was related to an operating, investing, or financing activity.6.if no cash flow occurred in step 5, determine whether the increase or decrease in each balance sheet account (except cash) was the result of a n

30、oncash income statement item or a simultaneous investing and/or financing transaction.continuedsteps in visual inspection method7.complete the various sections of the statement of cash flows and check that the subtotals of the sections sum to the net change in cash and that the sum of the net change

31、 in cash and the beginning cash balance is equal to the ending cash balance reported on the balance sheet.simple exampleleyton companystatement of cash flowsfor year ended december 31, 2<>0<>04the statements headingcontinuedsimple examplenet cash flow from operating activitiesnet income$

32、 7,<>0<>0<>0 adjustments for differences between incomeand cash flows from operating activities:add: depreciation expense2,3<>0<>0 increase in accounts payable1,5<>0<>0 less:increase in accounts receivable (2,7<>0<>0)net cash provided by operatin

33、g activities$8,1<>0<>0 cash flows from investing activitiespayment for purchase of building$(12,<>0<>0<>0)proceeds from sale of land, at cost 3,<>0<>0<>0 net cash used for investing activities(9,<>0<>0<>0)continuedsimple statement of

34、cash flowscash flows from financing activitiesproceeds from issuance of bonds$ 7,<>0<>0<>0 payment of dividends (3,5<>0<>0)net cash provided by financing activities 3,5<>0<>0 net increase in cash$2,6<>0<>0 cash, january 1, 2<>0<>04 4,

35、<>0<>0<>0 cash, december 31, 2<>0<>04$6,6<>0<>0 this amount should match the balance of the cash account in the ledger.worksheet methodstep 1:prepare the column headings on a worksheet. then enter the account title cash on the first line of the account title

36、s column and list the beginning balance, ending balance, and the change in cash in the respective columns.step 2:enter the titles of all the remaining accounts from the balance sheets on the worksheet and list each beginning and ending account balance, and the change in the account balance directly

37、below the cash information.worksheet methodstep 3:directly below these accounts, add the following headings:a. net cash flow from operating activitiesb. cash flows from investing activitiesc. cash flows from financing activitiesd. investing and financing activities notaffecting cashcontinuedleave su

38、fficient room below each heading.worksheet methodaccount for all the changes in the noncash accounts. reconstruct the journal entries that caused the changes in the noncash accounts directly on the worksheet. use these general rules: (a) start with net income. (b) account for the changes in the curr

39、ent assets (except cash) and current liability accounts. (c) account for the changes in the noncurrent accounts.continuedworksheet methodmake a final worksheet entry to record the net change in cash. the difference between the total cash inflows and outflows must be equal to the change in the cash a

40、ccount.prepare the statement of cash flows and the accompanying schedule from the information developed on the worksheet.worksheet methodanalyzing complex transactionsfirst, lets reconstruct the original entry.during the year the company sold land that cost $2,2<>0<>0 for $3,9<>0&l

41、t;>0.worksheet methodanalyzing complex transactionscash3,9<>0<>0land2,2<>0<>0gain on sale of land1,7<>0<>0cash flows from investing activities:proceeds from sale of land3,9<>0<>0land2,2<>0<>0net cash flow from operating activities: gain1

42、,7<>0<>0now, we can analyze the entry to help us with recording it on the worksheet.this is a tougher one.worksheet methodanalyzing complex transactionsduring the year, an earthquake (extraordinary event) occurred that destroyed a building owned by the company with a cost of $1<>0,

43、<>0<>0<>0 and a book value of $5,2<>0<>0. the company received after-tax proceeds of $3,1<>0<>0 from its insurance company.worksheet methodanalyzing complex transactionscash3,1<>0<>0accumulated depreciation: buildings4,8<>0<>0extraord

44、inary loss2,1<>0<>0buildings1<>0,<>0<>0<>0cash flows from investing activities:proceeds from building destroyed byearthquake3,1<>0<>0accumulated depreciation: buildings4,8<>0<>0net cash flow from operating activ.2,1<>0<>0buildin

45、gs1<>0,<>0<>0<>0now, we can reconstruct the entry.worksheet methodanalyzing complex transactionson january 1 the company issued bonds payable with a face value of $1<>0,<>0<>0<>0, receiving proceeds of $9,<>0<>0<>0. the company amorti

46、zed $1<>0<>0 of the discount during the year.lets reconstruct both entries related to the bond issue and prepare them for the worksheet.worksheet methodanalyzing complex transactionscash9,<>0<>0<>0discount on bonds payable1,<>0<>0<>0bonds payable, 1<

47、;>0%1<>0,<>0<>0<>0cash flows from financing activities:proceeds from issuance of bonds9,<>0<>0<>0discount on bonds payable1,<>0<>0<>0bonds payable, 1<>0%1<>0,<>0<>0<>0continuedworksheet methodanalyzing compl

48、ex transactionsbond discount amortization1<>0<>0discount on bonds payable1<>0<>0cash flows from operating activities:bond discount amortization1<>0<>0discount on bonds payable1<>0<>0special topicsa company sold equipment with a cost of $2,2<>0<

49、;>0 and accumulated depreciation of $7<>0<>0 for $2,1<>0<>0.analyzing complex transactionshere is another situation that was not part of the chapters comprehensive problem.analyzing complex transactionscash2,1<>0<>0accumulated depreciation 7<>0<>0eq

50、uipment2,2<>0<>0gain on sale of equipment6<>0<>0cash flows from investing activities:proceeds from sale of equipment2,1<>0<>0accumulated depreciation7<>0<>0equipment2,2<>0<>0net cash flow from operating activities: gain on sale of equip.6&l

51、t;>0<>0now reconstruct the entry.special topicsinterest paid and income taxes paidfasb statement number 95 requires that a company using the indirect method also disclose its interest paid and income taxes paid.interest paid and income taxes paidinterest expense+decrease in interest payable

52、orincrease in interest payable+amortization of premium on bonds payableoramortization of discount on bonds payable=interest paidinterest paidincome tax expense+decrease in income taxes payableorincrease in income taxes payable+decrease in deferred tax liabilityor-increase in deferred tax liability+i

53、ncrease in deferred tax assetordecrease in deferred tax asset=income taxes paidinterest paid and income taxes paidincome taxes paidpartial cash investing and financing activitiesa company acquired land for $1<>0,<>0<>0<>0 by paying $1,<>0<>0<>0 down and sign

54、ing a $9,<>0<>0<>0 note payable.partial cash investing and financing activitiesland1<>0,<>0<>0<>0cash1,<>0<>0<>0notes payable9,<>0<>0<>0land1<>0,<>0<>0<>0cash used for investing activities: purchase

55、d land1,<>0<>0<>0note payable9,<>0<>0<>0reconstruct the entry for the worksheet.make the worksheet entry in journal entry format.partial cash investing and financing activitiesschedule of noncash transactionsthe purchase of the land is shown as a $9,<>0<&

56、gt;0<>0 investing activityand the issuing of the note is shown as a $9,<>0<>0<>0 financing activity.partial cash investing and financing activitiesa company acquired land for $18,<>0<>0<>0 by paying $15,<>0<>0<>0 down and signing a $3,<&

57、gt;0<>0<>0 note payable.cash flows from investing activitiespurchase of land by issuance of noteand cash$(18,<>0<>0<>0)less: issuance of note 3,<>0<>0<>0cash payment for purchase of land$15,<>0<>0<>0partial cash investing and financin

58、g activitiesland1<>0,<>0<>0<>0cash1,<>0<>0<>0notes payable9,<>0<>0<>0land1<>0,<>0<>0<>0cash used for investing activities: purchased land1,<>0<>0<>0notes payable9,<>0<>0<>0reconstr

59、uct the entry for the worksheet.make the worksheet entry in journal entry format.temporary and long-term investmentson november 28, 2<>0<>04, dougherty company purchased 1,<>0<>0<>0 shares of bear company common stock for $4<>0,<>0<>0<>0 as a temporary investment in av