Kế toán tài chính - Statement of cash flows

PREVIEW OF CHAPTER 23Intermediate Accounting16th EditionKieso ● Weygandt ● Warfield Describe the usefulness and format of the statement of cash flows.Prepare a statement of cash flows.Contrast the direct and indirect methods of calculating net cash flow from operating activities.LEARNING OBJECTIVESDiscuss special problems in preparing a statement of cash flows.Explain the use of a worksheet in preparing a statement of cash flows.After studying this chapter, you should be able to:LO 1Statement of Cash Flows23Primary purpose: To provide information about a company’s cash receipts and cash payments during a period.Secondary objective: To provide cash-basis information about the company’s operating, investing, and financing activities.LO 1STATEMENT OF CASH FLOWSProvides information to help assess:Entity’s ability to generate future cash flows.Entity’s ability to pay dividends and meet obligations.Reasons for difference between net income and net cash flow from operating activities.Cash and noncash investing and financing transactions.LO 1Usefulness of the Statement of Cash FlowsSTATEMENT OF CASH FLOWSIncome Statement ItemsOperating ActivitiesChanges in Investments and Long-Term Asset ItemsInvesting ActivitiesChanges in Long-Term Liabilities and Stockholders’ EquityFinancing ActivitiesLO 1Classification of Cash FlowsSTATEMENT OF CASH FLOWSILLUSTRATION 23-1 Classification of Typical Cash Inflows and OutflowsLO 1Classification of Cash FlowsILLUSTRATION 23-1 Classification of Typical Cash Inflows and OutflowsLO 1Classification of Cash FlowsThe basis recommended by the FASB for the statement of cash flows is actually “cash and cash equivalents.” Cash equivalents are short-term, highly liquid investments that are both: Readily convertible to known amounts of cash, and So near their maturity that they present insignificant risk of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under this definition. LO 1Classification of Cash FlowsCompany Product Life CycleLO 1Classification of Cash FlowsFormat of the Statement of Cash FlowsPresentation:Operating activities. Investing activities.Financing activities.Direct MethodIndirect MethodReport inflows and outflows from investing and financing activities separately.LO 1STATEMENT OF CASH FLOWSILLUSTRATION 23-2 Format of the Statement of Cash FlowsLO 1Describe the usefulness and format of the statement of cash flows.Prepare a statement of cash flows.Contrast the direct and indirect methods of calculating net cash flow from operating activities.LEARNING OBJECTIVESDiscuss special problems in preparing a statement of cash flows.Explain the use of a worksheet in preparing a statement of cash flows.After studying this chapter, you should be able to:LO 2Statement of Cash Flows23Three Sources of Information:Comparative balance sheets.Current income statement data.Selected transaction data.Three Major Steps: Step 1. Determine change in cash. Step 2. Determine net cash flow from operating activities. Step 3. Determine net cash flows from investing and financing activities.LO 2PREPARATION OF STATEMENT OF CASH FLOWSIllustration: Tax Consultants Inc. started on January 1, 2016, when it issued 60,000 shares of $1 par value common stock for $60,000 cash. The company rented its office space, furniture, and equipment, and performed tax consulting services throughout the first year. The comparative balance sheets at the beginning and end of the year 2016 appear in Illustration 23-3. Illustration 23-4 shows the income statement and additional information for Tax Consultants.LO 2Illustrations—Tax Consultants Inc.ILLUSTRATION 23-3Comparative Balance Sheets, Tax Consultants Inc., Year 1ILLUSTRATION 23-4Income Statement, Tax Consultants Inc., Year 1Step 1: Determine the Change in CashLO 2Illustrations—Tax Consultants Inc.ILLUSTRATION 23-3Comparative Balance Sheets, Tax Consultants Inc., Year 1Company must determine revenues and expenses on a cash basis. Eliminate the effects of income statement transactions that do not result in an increase or decrease in cash.Convert net income to net cash flow from operating activities through either a direct method or an indirect method.Step 2: Determine the Net Cash Flow from Operating ActivitiesLO 2Illustrations—Tax Consultants Inc.Step 2: Determine the Net Cash Flow from Operating ActivitiesILLUSTRATION 23-5Net Income versus Net Cash Flow from Operating ActivitiesLO 2Illustrations—Tax Consultants Inc.Accounts Receivable1/1/16 Balance 0 Revenues 125,000Receipts from customers 89,00012/31/16 Balance 36,000Increase in Accounts Receivable—Indirect MethodILLUSTRATION 23-6Illustrations—Tax Consultants Inc.LO 2Accounts receivable increased by $36,000 (from $0 to $36,000) during the year.When the Accounts Receivable balance increases, cash receipts are lower than revenue earned under the accrual basis. Accounts Receivable1/1/16 Balance 0 Revenues 125,000Receipts from customers 89,00012/31/16 Balance 36,000Increase in Accounts Receivable—Indirect MethodILLUSTRATION 23-6Illustrations—Tax Consultants Inc.LO 2The increase in accounts receivable is subtracted from net income to arrive at net cash provided by operating activities.ILLUSTRATION 23-7Increase in Accounts Payable—Indirect MethodIllustrations—Tax Consultants Inc.LO 2Accounts payable increased by $5,000 during the year.When accounts payable increase during the year, expenses on an accrual basis exceed those on a cash basis.ILLUSTRATION 23-7Tax Consultants Inc.ILLUSTRATION 23-3ILLUSTRATION 23-8Step 3: Determine Net Cash Flows from Investing and Financing ActivitiesTax Consultants Inc.Step 3: Determine Net Cash Flows from Investing and Financing ActivitiesILLUSTRATION 23-3ILLUSTRATION 23-8Tax Consultants Inc.Step 3: Determine Net Cash Flows from Investing and Financing ActivitiesILLUSTRATION 23-3ILLUSTRATION 23-8Tax Consultants Inc.Step 3: Determine Net Cash Flows from Investing and Financing ActivitiesILLUSTRATION 23-3ILLUSTRATION 23-8Tax Consultants Inc.Step 3: Determine Net Cash Flows from Investing and Financing ActivitiesILLUSTRATION 23-3ILLUSTRATION 23-8Statement of Cash Flows—2016ILLUSTRATION 23-8Illustrations—Tax Consultants Inc.LO 2Illustration: Norman Company’s financial statements for the year ended December 31, 2017, contained the following condensed information.Operating Activities — Indirect MethodLO 2Prepare the operating activities section of the statement of cash flows using the indirect method (Step 2).Operating Activities — Indirect MethodLO 2Norman Company’s financial statements for the year ended December 31, 2017, contained the following condensed information.Assume accounts payable relates to operating expenses.Operating Activities — Direct MethodLO 2Prepare the operating activities section of the statement of cash flows using the Direct method (Step 2).ILLUSTRATION 23-22Accounts Receivable1/1/17 Balance 59,000 Revenues 840,000Receipts from customers 862,00012/31/17 Balance 37,000Operating Activities — Direct MethodLO 2Accounts Payable1/1/17 Balance 31,000Operating expenses 624,00012/31/17 Balance 46,000ILLUSTRATION 23-24Operating Activities — Direct MethodPrepare the operating activities section of the statement of cash flows using the Direct method (Step 2).LO 2Payments for operating expenses 609,000Income Tax Payable1/1/17 Balance 8,500Income tax expense 40,00012/31/17 Balance 4,000Payments for income tax 44,500Operating Activities — Direct MethodPrepare the operating activities section of the statement of cash flows using the Direct method (Step 2).LO 2ILLUSTRATION 23-24Operating Activities — Direct MethodPrepare the operating activities section of the statement of cash flows using the Direct method (Step 2).LO 2Illustration: (a) Plant assets that had cost $25,000 6 years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold for $5,300.Step 3: Determine Net Cash Flow from Investing and Financing ActivitiesLO 2Investing and Financing ActivitiesOIF(b): During the year, 10,000 shares of common stock with a stated value of $10 a share were issued for $33 a share.Investing and Financing ActivitiesLO 2OIFInvesting and Financing Activities(d): The company sustained a net loss for the year of $50,000. Depreciation amounted to $22,000, and a gain of $9,000 was realized on the sale of land for $39,000 cash.Investing and Financing ActivitiesLO 2OIFInvesting and Financing Activities(h): During the year, treasury stock costing $47,000 was purchased.Investing and Financing ActivitiesLO 2OIFInvesting and Financing ActivitiesSources of Information for the Statement of Cash FlowsComparative balance sheets.An analysis of the Retained Earnings account.Includes all changes that have passed through cash or have resulted in an increase or decrease in cash. Write-downs, amortization charges, and similar “book” entries, such as depreciation, because they have no effect on cash.LO 2Indirect Method—Additional Adjustments Adjustments Needed to Determine Net Cash Flow from Operating Activities.ILLUSTRATION 23-17LO 2Describe the usefulness and format of the statement of cash flows.Prepare a statement of cash flows.Contrast the direct and indirect methods of calculating net cash flow from operating activities.LEARNING OBJECTIVESDiscuss special problems in preparing a statement of cash flows.Explain the use of a worksheet in preparing a statement of cash flows.After studying this chapter, you should be able to:Statement of Cash Flows23LO 3ILLUSTRATION 23-21Companies adjust each item in the income statement from the accrual basis to the cash basis.LO 3Net Cash Flow from Operating Activities—Direct MethodSpecial Rules Applying to Direct and Indirect MethodsNet Cash Flow from Operating Activities—Direct MethodCompanies that use the direct method are required, at a minimum, to report separately:ReceiptsCash collected from customers (including lessees, licensees, etc.).Interest and dividends received.Other operating cash receipts, if any.LO 3Companies that use the direct method are required, at a minimum, to report separately:PaymentsCash paid to employees and suppliers of goods or services (including suppliers of insurance, advertising, etc.).Interest paid.Income taxes paid.Other operating cash payments, if any.LO 3Special Rules Applying to Direct and Indirect MethodsNet Cash Flow from Operating Activities—Direct MethodDescribe the usefulness and format of the statement of cash flows.Prepare a statement of cash flows.Contrast the direct and indirect methods of calculating net cash flow from operating activities.LEARNING OBJECTIVESDiscuss special problems in preparing a statement of cash flows.Explain the use of a worksheet in preparing a statement of cash flows.After studying this chapter, you should be able to:Statement of Cash Flows23LO 4SPECIAL PROBLEMS IN STATEMENT PREPARATIONAmortization of limited-life intangible assets.Amortization of bond discount or premium.Depreciation and AmortizationPostretirement Benefit CostsCompany must adjust net income by the difference between cash paid and the expense reported.LO 4Adjustments to Net IncomeAdjustments to Net IncomeAffect net income but have no effect on cash.Changes in Deferred Income TaxesEquity Method of AccountingNet increase in the investment account does not affect cash flows. Company must deduct the net increase from net income to arrive at net cash flow from operating activities.LO 4A loss is added to net income to compute net cash flow from operating activities because the loss is a noncash charge in the income statement.Company reports a gain in the statement of cash flows as part of the cash proceeds from the sale of equipment under investing activities, thus it deducts the gain from net income to avoid double-counting—once as part of net income and again as part of the cash proceeds from the sale.Losses and GainsLO 4Adjustments to Net IncomeCash is not affected by recording the expense. The company must increase net income by the amount of compensation expense from stock options in computing net cash flow from operating activities.Stock OptionsLO 4Adjustments to Net IncomeCompanies should report either as investing activities or as financing activities cash flows from unusual and infrequent transactions and other events whose effects are included in net income but which are not related to operations.Unusual and Infrequent Items LO 4Adjustments to Net IncomeBecause an increase in Allowance for Doubtful Accounts results from a charge to bad debt expense, a company should add back an increase in Allowance for Doubtful Accounts to net income to arrive at net cash flow from operating activities.Indirect MethodILLUSTRATION 23-28Accounts Receivable Balances, Redmark Co.LO 4SPECIAL PROBLEMSAccounts Receivable (Net)Accounts Receivable (Net)One method of presenting this information in the statement of cash flows:Indirect MethodLO 4REDMARK CO.Statement of Cash Flows (Partial)For The Year 2014ILLUSTRATION 23-29Presentation of Allowance for Doubtful Accounts— Indirect MethodAccounts Receivable (Net)Alternate method (net approach) of presenting this information in the statement of cash flows:LO 4Indirect MethodILLUSTRATION 23-30Net Approach to Allowance for Doubtful Accounts— Indirect MethodAccounts Receivable (Net)Company should not net Allowance for Doubtful Accounts against Accounts Receivable.Direct MethodLO 4REDMARK CO.Income Statement For The Year 2014ILLUSTRATION 23-31Income Statement, Redmark Co.Accounts Receivable (Net)Company should not net Allowance for Doubtful Accounts against Accounts Receivable.ILLUSTRATION 23-31Cash sales should be reported at $85,000 ($100,000 - 9,000 - 6,000).Increase in Accounts ReceivableILLUSTRATION 23-32LO 4Direct MethodSome changes in working capital, although they affect cash, do not affect net income.Purchase of short-term available-for-sale securities.Issuance of a short-term nontrade note payable for cash.Cash dividend payable.LO 4SPECIAL PROBLEMSOther Working Capital ChangesIllustration: If the net loss is $50,000 and the total amount of charges to add back is $60,000, then net cash provided by operating activities is $10,000.ILLUSTRATION 23-33Computation of Net Cash Flow from OperatingActivities—Cash InflowLO 4Net LossesSPECIAL PROBLEMSCommon noncash transactions that a company should report or disclose:Acquisition of assets by assuming liabilities (including capital lease obligations) or by issuing equity securities.Exchanges of nonmonetary assets.Refinancing of long-term debt.Conversion of debt or preferred stock to common stock.Issuance of equity securities to retire debt.LO 4Significant Noncash TransactionsSPECIAL PROBLEMSDescribe the usefulness and format of the statement of cash flows.Prepare a statement of cash flows.Contrast the direct and indirect methods of calculating net cash flow from operating activities.LEARNING OBJECTIVESDiscuss special problems in preparing a statement of cash flows.Explain the use of a worksheet in preparing a statement of cash flows.After studying this chapter, you should be able to:Statement of Cash Flows23LO 5USE OF A WORKSHEETA worksheet involves the following steps.Step 1. Enter the balance sheet accounts and their beginning and ending balances in the balance sheet accounts section.Step 2. Enter the data that explain the changes in the balance sheet accounts and their effects on the statement of cash flows in the reconciling columns of the worksheet.Step 3. Enter the increase or decrease in cash on the cash line and at the bottom of the worksheet. This entry should enable the totals of the reconciling columns to be in agreement.LO 5RELEVANT FACTS - SimilaritiesBoth GAAP and IFRS require that companies prepare a statement of cash flows.Both IFRS and GAAP require that the statement of cash flows should have three major sections—operating, investing, and financing—along with changes in cash and cash equivalents.Similar to GAAP, the cash flow statement can be prepared using either the indirect or direct method under IFRS. For both IFRS and GAAP, most companies use the indirect method for reporting net cash flow from operating activities.The definition of cash equivalents used in IFRS is similar to that used in GAAP.LO 6 Compare the statement of cash flows under GAAP and IFRS.RELEVANT FACTS - DifferencesA major difference in the definition of cash and cash equivalents is that in certain situations, bank overdrafts are considered part of cash and cash equivalents under IFRS(which is not the case in GAAP). Under GAAP, bank overdrafts are classified as financing activities. IFRS requires that non-cash investing and financing activities be excluded from the statement of cash flows. Instead, these non-cash activities should be reported elsewhere. This requirement is interpreted to mean that non-cash investing and financing activities should be disclosed in the notes to the financial statements instead of in the financial statements. Under GAAP, companies may present this information in the cash flow statement.LO 6RELEVANT FACTS - DifferencesOne area where there can be substantive differences between IFRS and GAAP relates to the classification of interest, dividends, and taxes. IFRS provides more alternatives for disclosing these items, while GAAP requires that except for dividends paid (which are classified as a financing activity), these items are all reported as operating activities.LO 6ON THE HORIZONPresently, the IASB and the FASB are involved in a joint project on the presentation and organization of information in the financial statements. With respect to the cash flow statement specifically, the notion of cash equivalents will probably not be retained. The definition of cash in the existing literature would be retained, and the statement of cash flows would present information on changes in cash only. In addition, the IASB and FASB favor presentation of operating cash flows using the direct method only. This approach is generally opposed by the preparer community.LO 6Which of the following is true regarding the statement of cash flows under IFRS?The statement of cash flows has two major sections—operating and nonoperating.The statement of cash flows has two major sections—financing and investing.The statement of cash flows has three major sections—operating, investing, and financing.The statement of cash flows has three major sections—operating, non-operating, and financing.IFRS SELF-TEST QUESTIONLO 6In the case of a bank overdraft:GAAP typically includes the amount in cash and cash equivalents.IFRS typically includes the amount in cash equivalents but not in cash.GAAP typically treats the overdraft as a liability, and reports the amount in the financing section of the statement of cash flows.IFRS typically treats the overdraft as a liability, and reports the amount in the investing section of the statement of cash flows.IFRS SELF-TEST QUESTIONLO 6For purposes of the statement of cash flows, under IFRS interest paid is treated as:an operating activity in all cases.an investing or operating activity, depending on use of the borrowed funds.either a financing or investing activity.either an operating or financing activity, but treated consistently from period to period.IFRS SELF-TEST QUESTIONLO 6“Copyright © 2016 John Wiley & Sons, Inc. 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