Kế toán, kiểm toán - Chapter 13: Statement of cash flows

Slide 13-2CHAPTER 13 Statement of Cash FlowsLearning objective 1: Explain the need for the statement of cash flows and identify the three types of business activities presented in a statement of cash flows.Slide 13-3Need for a Statement of Cash FlowsStakeholders want to know how a company generates and spends cashCan the companyGenerate enough cash to pay its wages and bills, including debt paymentsGenerate cash in order to earn a reasonable return and pay dividendsGenerate enough cash to avoid bankruptcySlide 13-4Need for a Statement of Cash FlowsCash flow is not the same as net incomeUnder GAAP, income is calculated using the accrual methodThe income statement does little to inform managers and other company stakeholders of the sources and uses of cashLearning objective 1: Explain the need for the statement of cash flows and identify the three types of business activities presented in a statement of cash flows.Slide 13-5Need for a Statement of Cash FlowsFor the purposes of the cash flow statement, cash includes both cash and cash equivalentsCash equivalents are short term investments that can be readily converted into cashExamples include 90 day US Treasury Bills and money market fundsLearning objective 1: Explain the need for the statement of cash flows and identify the three types of business activities presented in a statement of cash flows.Slide 13-6Types of Business ActivitiesOperating activitiesCash flows related to production and delivery of goods and servicesReflect the day to day profit oriented activities of a businessPrincipal cash inflows are cash sales and collection of accounts receivableMajor sources of cash outflows include payments to suppliers, employees and taxing authoritiesLearning objective 1: Explain the need for the statement of cash flows and identify the three types of business activities presented in a statement of cash flows.Slide 13-7Examples of Operating ActivitiesLearning objective 1: Explain the need for the statement of cash flows and identify the three types of business activities presented in a statement of cash flows.Slide 13-8Types of Business ActivitiesInvesting activitiesCash flows related to buying and selling of long-term assetsExamples include collections from long term loans, collections from the sale of equipment no longer in use, payments to buy securities of other companies, buying a building and buying a businessLearning objective 1: Explain the need for the statement of cash flows and identify the three types of business activities presented in a statement of cash flows.Examples of Investing ActivitiesSlide 13-9Learning objective 1: Explain the need for the statement of cash flows and identify the three types of business activities presented in a statement of cash flows.Slide 13-10Types of Business ActivitiesFinancing activitiesCash inflows related to issuing stock and issuing long-term debtCash outflows related to repurchasing stock, paying off loans and making dividend paymentsLearning objective 1: Explain the need for the statement of cash flows and identify the three types of business activities presented in a statement of cash flows.Slide 13-11Examples of Financing ActivitiesLearning objective 1: Explain the need for the statement of cash flows and identify the three types of business activities presented in a statement of cash flows.Slide 13-12Which of the following would be a cash outflow from operating activities?Acquisition of operating equipmentRetirement of bondsCollection of accounts receivablePayments to suppliers for raw materials Answer: dPayments to suppliers for raw materialsTest Your Knowledge 1Learning objective 1: Explain the need for the statement of cash flows and identify the three types of business activities presented in a statement of cash flows.Slide 13-13Which of the following would be a cash outflow from investing activities?Payments to suppliersPayments to employeesPurchase of landPayment of dividendsAnswer: cPurchase of landTest Your Knowledge 2Learning objective 1: Explain the need for the statement of cash flows and identify the three types of business activities presented in a statement of cash flows.Slide 13-14 Which of the following would be a cash outflow from financing activities?Payment of dividendsPayments to taxing authoritiesPurchase of landCash salesAnswer: a Payment of dividendsTest Your Knowledge 3Learning objective 1: Explain the need for the statement of cash flows and identify the three types of business activities presented in a statement of cash flows.Slide 13-15Statement of Cash Flows General FormatLearning objective 2: Prepare a statement of cash flows using the direct method.Slide 13-16Preparing the Statement of Cash FlowsTwo acceptable methodsDirect methodLike an income statement prepared using the cash basisIndirect methodReconciles net income to cash flow from operationsPreferable under GAAPMost used in financial statementsLearning objective 2: Prepare a statement of cash flows using the direct method.Slide 13-17Preparing the Statement of Cash FlowsCash flows from operating activitiesCash collected on sale of merchandiseCash received (paid) related to interest income (expense)Cash received related to dividend incomeCash paid to purchase merchandiseCash paid for general and administrative expensesCash paid for income taxesLearning objective 2: Prepare a statement of cash flows using the direct method.Slide 13-18Preparing the Statement of Cash FlowsCash flows from investing activitiesCash received on the sale of a machine no longer in useCash paid to buy a machineCash paid to buy a buildingCash received from selling a buildingCash paid to buy a businessLearning objective 2: Prepare a statement of cash flows using the direct method.Slide 13-19Preparing the Statement of Cash FlowsCash flows from financing activitiesCash received from selling bondsCash received from using a line of creditCash received from issuing common stockCash paid to retire long term debtCash dividends paidLearning objective 2: Prepare a statement of cash flows using the direct method.Slide 13-20Preparing the Statement of Cash FlowsDirect methodLists specific cash inflows and outflows from operating activitiesSimilar to cash-basis income statement within the operating activities sectionFASB requires separate schedule to reconcile cash flows from operating activities and net incomeLearning objective 2: Prepare a statement of cash flows using the direct method.Slide 13-21Cash Flows from Operating Activities (Direct Method)To determine cash flows using the direct methodAnalyze all balance sheet accounts, other than cash, to determine how their changes were affected by cash flowsThis analysis will involve information from the income statementLearning objective 2: Prepare a statement of cash flows using the direct method.Slide 13-22Cash Flows from Operating Activities (Direct Method)Current asset and current liability accountsThe first account is cash received from customersSolving the following equation yields cash receipts of $10,004,825Beginning balance receivables$879,053Plus sales10,548,640Less cash collected?Equals ending balance receivables$1,422,868Learning objective 2: Prepare a statement of cash flows using the direct method.Slide 13-23Cash Flows from Operating Activities (Direct Method)Current asset and current liability accountsThe next item is cost of merchandise soldThe following formula yields purchases of $8,286,993Beginning inventory$988,935Plus purchases?Less cost of goods sold7,911,480Equals ending balance inventory$1,364,448Learning objective 2: Prepare a statement of cash flows using the direct method.Slide 13-24Cash Flows from Operating Activities (Direct Method)Current asset and current liability accountsPurchases of $8,286,993 are used in the next calculation, which solves for cash payments for purchases of inventory of $8,202,703Beginning balance accounts payable$575,000Plus purchases8,286,993Less cash paid for inventory purchases?Equals ending balance accounts payable$659,290Learning objective 2: Prepare a statement of cash flows using the direct method.Slide 13-25Cash Flows from Operating Activities (Direct Method)Analyze other current asset and liability accountsUse prepaid insurance and insurance expense to solve for cash payments for insuranceUse accrued wages and salaries and wages and salaries expense to solve for cash payments for wages and salariesUse income taxes payable and income tax expense to solve for cash payments for income taxesLearning objective 2: Prepare a statement of cash flows using the direct method.Slide 13-26Cash Flows from Operating Activities (Direct Method)Long term asset accountsUse accumulated depreciation, depreciation expense, book value of equipment sold, and loss on sale to solve for Cash proceeds related to sale of equipment, andCash paid for purchases of equipmentLearning objective 2: Prepare a statement of cash flows using the direct method.Slide 13-27Cash Flows from Operating Activities (Direct Method)Long term liabilities and stockholders’ equityCash paid to reduce debt (or cash proceeds from borrowing) is the difference between the beginning and ending balance of long term debtUse beginning and ending retained earnings plus net income to solve for cash payments for dividendsLearning objective 2: Prepare a statement of cash flows using the direct method.Slide 13-28Test Your Knowledge 4RS Inc. has the following information:Taxes payable 12/31/2016: $171,000Income tax expense 2017: $585,000Taxes payable 12/31/2017: $150,000Calculate cash paid for taxes in 2017Answer:$171,000 + ? - $150,000 = $585,000? = 564,000Learning objective 2: Prepare a statement of cash flows using the direct method.The indirect method is much more commonThe two methods differ only in terms of the presentation of cash flows related to operating activitiesThere are no differences for inventing activities and financing activitiesPreparing the Statement of Cash Flows (Indirect Method)Learning objective 3: Prepare a statement of cash flows using the direct method and interpret information in the statement of cash flows.5 step approach to calculate cash flows from operating activities – indirectStart with net incomeAdd non-cash expenses such as depreciation and amortizationSubtract gains and add back lossesSubtract (add) increases (decreases) in current assets other than cashAdd (subtract) increases (decreases) in current liabilitiesPreparing the Statement of Cash Flows (Indirect Method)Learning objective 3: Prepare a statement of cash flows using the direct method and interpret information in the statement of cash flows.The operating activities section is a reconciliation of net income to cash flows from operating activitiesCurrent assetsIncreases in current assets indicate we must reduce income to convert to cash basisDecreases indicate we must increase income to convert to cash basisPreparing the Statement of Cash Flows (Indirect Method)Learning objective 3: Prepare a statement of cash flows using the direct method and interpret information in the statement of cash flows.Current liabilitiesIncreases in current liabilities indicate we must increase income to convert to cash basisDecreases in current liabilities indicate we must reduce income to convert to cash basisPreparing the Statement of Cash Flows (Indirect Method)Learning objective 3: Prepare a statement of cash flows using the direct method and interpret information in the statement of cash flows.Slide 13-33Indirect Method part 1Learning objective 3: Prepare a statement of cash flows using the direct method and interpret information in the statement of cash flows.Slide 13-34Indirect Method part 2Learning objective 3: Prepare a statement of cash flows using the direct method and interpret information in the statement of cash flows.Slide 13-35 Using the indirect method, changes in current assets other than cash and current liabilities are used to adjust net income to determine:Income from operationsNet cash from investing activitiesNet cash provided by operating activitiesNone of the aboveAnswer: c Net cash provided by operating activitiesTest Your Knowledge 5Learning objective 3: Prepare a statement of cash flows using the direct method and interpret information in the statement of cash flows.Slide 13-36Interpreting the Statement of Cash FlowsIn general, the most important part is the cash flows from operating activitiesUnless a company is able to generate cash from its core operations, it is unlikely to succeedIf cash flows in this section are low, this implies that a company must offset them by changes in investing and financing decisionsLearning objective 3: Prepare a statement of cash flows using the direct method and interpret information in the statement of cash flows.Slide 13-37Statement of Cash FlowsLearning objective 3: Prepare a statement of cash flows using the direct method and interpret information in the statement of cash flows.Slide 13-38Copyright © 2016 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.