Kế toán, kiểm toán - Chapter học 13: Statement of cash flow

CHAPTER 13:Statement of Cash FlowLO 1: Describe the content and format of the statement of cash flows.LO 2: Prepare the operating activities section of a statement of cash flows using the direct method.LO 3: Prepare the investing and financing activities sections and complete the statement of cash flows.LO 4: Use the statement of cash flows to evaluate a company.LO 5: Prepare the operating activities section of a statement of cash flows using the direct method. (Appendix 13A)LEARNING OBJECTIVESHelps users assess:A company’s ability to generate cashWhat the company did with the cashThis is useful in determining:Company’s ability to generate future cash flowsInvesting and financing transactions during the period, and effect upon capital structureMaking comparisons with other companiesPurpose of the Statement of Cash FlowsCash may include cash equivalentsShort-term, highly liquid held for trading investments that have insignificant risk and are readily converted to cash within a short period of time (usually within three months)Cash receipts and payments are classified into three categories:Operating activitiesInvesting activitiesFinancing activitiesDefinition of CashClassification of Cash FlowsCash effects of transactions that create revenues and expenses that enter into determination of profitIncludes relevant noncash current assets and current liabilities on the statement of financial positionWhere the related account is an income statement accountOperating ActivitiesPurchasing and disposing of:Long-term investments not held for tradingLong-lived assetsLending money and collecting the loansGenerally includes non-current asset items (e.g., long-lived investments, property, plant, and equipment) on the statement of financial positionInvesting ActivitiesObtaining cash from issuing debt and repaying the amounts borrowed Obtaining cash from selling common and preferred shares and paying dividendsGenerally includes non-current liabilities, and shareholders’ equity itemsFinancing ActivitiesIf it does not affect cash, do NOT report in statement of cash flowsReport in separate note to the financial statementsExamples:Issue of shares to purchase assets or to reduce liabilitiesConversion of debt into equityExchange of property, plant, and equipmentSignificant Noncash ActivitiesHow would the following transaction be reported in the statement of cash flows?“A company acquired a piece of equipment by issuing common shares for part of the cost and obtaining a bank loan for the remainder”Discussion QuestionFormat of Cash Flow StatementStep 1: Prepare operating activities sectionStep 2: Prepare investing activities sectionStep 3: Prepare financing activities sectionStep 4: Complete the statement of cash flowsPreparation of the Statement of Cash FlowsDetermine the net cash provided (used) by operating activities by converting net income from an accrual basis to a cash basisConversion may be done by either the indirect method or the direct methodBoth methods arrive at the same amount of net cash provided (used) by operating activitiesMost companies favour the indirect method for the following reasonsEasier to prepareReveals less information to competitorsStep 1:Operating ActivitiesStart with Net Income and add or deduct items not affecting cash to arrive at net cash provided (used) by operating activities+ Noncash expenses such as depreciation and losses– Noncash losses and gains+ Decreases in current asset accounts and increases in current liability accounts– Increases in current asset accounts and decreases in current liability accountsPrepare the operating activities section using the Indirect MethodConversion to Net Cash Provided (Used) by Operating Activities – Indirect Method:Net Cash Provided (Used) by Operating ActivitiesMeasure cash flows relating to non-current asset accounts; long-term investments; property, plant and equipment; intangible assetsReported the same under both direct and indirect methodsAsset acquisitions are uses of cash; disposals are sources of cash (for the proceeds of disposition)Depreciation expense is a noncash charge Step 2: Investing ActivitiesNet Cash Provided (Used) by Investing ActivitiesDetermine the net cash provided (used) by financing activities by analyzing changes in non-current liability and equity accountsChanges to notes, loans, and bonds payable are analyzed to determine cause of changeAmortization of premium or discount (if any) are noncash charges and have no effectAnalyze share capital and retained earnings accounts for changes and their causeProfit is reported in the operating activities sectionStep 3:Financing ActivitiesNet Cash Provided (Used) by Financing ActivitiesComplete the statement of cash flowsDetermine increase (decrease) in cashEnsure ending cash balance agrees to that reported on statement of financial positionIdentify any noncash disclosuresStep 4:The Statement of Cash FlowsStatement of Cash FlowsIndirect MethodStatement of Cash FlowsIndirect Method con’dCorporate Life Cycle and Cash Flowsfour phases: introductory, growth, maturity and decline can help in the understanding of a company’s cash flow from its operating, investing and financing activitiesUsing Cash Flows to Evaluate a CompanyMeasures discretionary cash flow remaining from operating activities available to use to expand operations, reduce debt, go after new opportunities, or pay additional dividends, among other alternativesNet cash provided (used) by operating activities – net capital expenditures – dividends paidFree Cash FlowHigher is betterDetails cash receipts and paymentsSimilar to indirect method:Adjusts income statement from accrual basis to cash basis in order to arrive at net cash provided (used) by operating activitiesHowever, whereas indirect method adjusts total net income, direct method adjusts each individual revenue and expense item in the income statementPrepare the operating activities section using the Direct Method (Appendix 13A)The relationship among cash receipts from customers, revenues from sales, and changes in accounts receivable is:If other cash receipts (such as interest), these must be adjusted for any receivable amounts as was done aboveCash Receipts from CustomersThe relationship among cash payments to suppliers, cost of goods sold, changes in inventory, and changes in accounts payable is:Cash Payments to SuppliersThe relationship among cash payments for operating expenses, changes in prepaid expenses, and changes in accrued expenses payable is:Cash Payments for Operating ExpensesThe relationship among cash payments for income tax, income tax expense, and changes in income tax payable is:Cash Payments for Income TaxA similar calculation would be made for cash payments for interestSummary of Conversion of Net Cash Provided (Used) by Operating Activities – Direct MethodNet Cash Provided (Used) by Operating ActivitiesDirect MethodComparing IFRS and ASPECOPYRIGHTCopyright © 2017 John Wiley & Sons Canada, Ltd. 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