The Statement of Cash FlowsThe Statement of Cash Flows

Presentations for Chapter 14 by Glenn Owen

Key PointsKey Points The structure and format of the statement of cash flows. Cash flows from operating, investing, and financing activities. How the statement of cash flows complements the other financial

statements and how it can be used by those interested in the financial condition of a company.

Important investing and financing transactions that do not appear on the statement of cash flows and how they are reported.

Economic consequences associated with the statement of cash flows.

Preparing a statement of cash flows from the information contained in two balance sheets, an income statement, and a statement of retained earnings.

General Description of the General Description of the Statement of Cash FlowsStatement of Cash Flows

Cash provided (used) by operating activities– Cash inflows and outflows associated with the acquisition

and sale of the company’s inventories and services

Cash provided (used) by investing activities– Cash inflows and outflows associated with the purchase and

sale of a company’s noncurrent assets

Cash provided (used) by financing activities– Cash inflows and outflows associated with

a company’s two sources of outside capital: liabilities and contributed capital

Determining Cash Determining Cash Inflow from SalesInflow from SalesSales

Allowance for Doubtful Accounts Bad Debt Expense

Accounts Receivable

12,000

1,000

Determining Cash Determining Cash Inflow from SalesInflow from SalesSales

32,000

Allowance for Doubtful Accounts Bad Debt Expense

(1)

Accounts Receivable

12,000

32,000

(1)

(1) Sales on account

1,000

Determining Cash Determining Cash Inflow from SalesInflow from SalesSales

32,000

Allowance for Doubtful Accounts

1,0001,100

Bad Debt Expense

1,100

(1)

(2)

Accounts Receivable

12,000

32,000

(1)

(2)

(1) Sales on account (2) Estimated allowance

Determining Cash Determining Cash Inflow from SalesInflow from SalesSales

32,000

Accounts Receivable

12,000

32,000

800

Allowance for Doubtful Accounts

800

1,0001,100

1,300

1,100

(1)

(2)(3)

(3)(1)

(2)

(1) Sales on account (2) Estimated allowance(3) Write-off of accounts receivable

Bad Debt Expense

Determining Cash Determining Cash Inflow from SalesInflow from SalesSales

32,000

Accounts Receivable

12,000

32,000

23,200

80020,000

Allowance for Doubtful Accounts

800

1,0001,100

1,300

Bad Debt Expense

1,100

(1) Sales on account (2) Estimated allowance(3) Write-off of accounts receivable (4) Collection on account

(1)(1)

(2)(3)

(4)(3)

(2)

Cash inflow from sales = $20,000

(4)

Determining Cash Determining Cash Paid to SuppliersPaid to Suppliers

Cost of Goods Sold Inventory

Accounts Payable

3,000

12,000

Determining Cash Determining Cash Paid to SuppliersPaid to Suppliers

Cost of Goods Sold

11,000

Inventory

3,00011,000

Accounts Payable

(1)(1)

12,000

(1) Sales

Determining Cash Determining Cash Paid to SuppliersPaid to Suppliers

Cost of Goods Sold

11,000

Inventory

3,000

12,000

11,000

Accounts Payable

12,00012,000

(1)(1)

(2)

(2)

(1) Sales (2) Inventory purchase on account

Determining Cash Determining Cash Paid to SuppliersPaid to Suppliers

Cost of Goods Sold

11,000

Inventory

3,000

12,000

4,000

11,000

Accounts Payable

15,000

12,00012,000

9,000(1) Sales (2) Inventory purchase(3) Payment on account. on account

(1)(1)

(2)

(2)(3)

Cash paid to suppliers = $15,000(3)

Determining Cash Inflow from Determining Cash Inflow from Sale of MachinerySale of Machinery

Loss on Sale of Machinery Machinery

8,000

Accumulated Depreciation

2,000

Depreciation Expense

Determining Cash Inflow from Determining Cash Inflow from Sale of MachinerySale of Machinery

Loss on Sale of Machinery Machinery

8,000

Accumulated Depreciation

2,0001,000

Depreciation Expense

1,000(1)(1)

(1) Depreciation

Determining Cash Inflow from Determining Cash Inflow from Sale of MachinerySale of Machinery

Loss on Sale of Machinery

100

Machinery

8,000

6,000

2,000

Accumulated Depreciation

500

2,0001,000

2,500

Depreciation Expense

1,000

(1) Depreciation (2) Sale of machinery for a loss

(2)

(1)(1)

(2)

(2)Cash inflow from machinery = $1,400

(2)

Review Problem Review Problem Operating Cash FlowsOperating Cash Flows

Income Statement Adjustments/ Operating Explanations Cash Flows

Review Problem Review Problem Operating Cash FlowsOperating Cash Flows

Income Statement Adjustments/ Operating Explanations Cash Flows

Sales $55,000 (500) [increase in a/r]$54,500

Review Problem Review Problem Operating Cash FlowsOperating Cash Flows

Income Statement Adjustments/ Operating Explanations Cash Flows

Sales $55,000 (500) [increase in a/r]$54,500

COGS (35,000) (2,500) [increase in inv.]

+3,500 [increase in a/p] (34,000)

Review Problem Review Problem Operating Cash FlowsOperating Cash Flows

Income Statement Adjustments/ Operating Explanations Cash Flows

Sales $55,000 (500) [increase in a/r]$54,500

COGS (35,000) (2,500) [increase in inv.]

+3,500 [increase in a/p] (34,000)

Rent (2,000) (1,000) [increase in pp rent](3,000)

Interest (2,000) (500) [decrease in premium](2,500)

Misc. (9,000) (3,000) [decrease in other pay](12,000)

Depreciation (5,000) [no cash effect]0

Amortization (1,000) [no cash effect]0

Gain 1,000 [no cash effect]0

Review Problem Review Problem Operating Cash FlowsOperating Cash Flows

Income Statement Adjustments/ Operating Explanations Cash Flows

Sales $55,000 (500) [increase in a/r]$54,500

COGS (35,000) (2,500) [increase in inv.]

+3,500 [increase in a/p] (34,000)

Rent (2,000) (1,000) [increase in pp rent](3,000)

Interest (2,000) (500) [decrease in premium](2,500)

Misc. (9,000) (3,000) [decrease in other pay](12,000)

Depreciation (5,000) [no cash effect]0

Amortization (1,000) [no cash effect]0

Gain 1,000 [no cash effect]0

Net income $ 2,000 Net cash from operations$ 3,000

Review Problem Review Problem Investing Cash FlowsInvesting Cash Flows

Investing Activities Adjustments/ Investing Explanations Cash Flows

Review Problem Review Problem Investing Cash FlowsInvesting Cash Flows

Investing Activities Adjustments/ Investing Explanations Cash Flows

Sale of machinery Cash proceeds$ 3,000

Review Problem Review Problem Investing Cash FlowsInvesting Cash Flows

Investing Activities Adjustments/ Investing Explanations Cash Flows

Sale of machinery Cash proceeds$ 3,000

Purchase of machinery Cash purchases

(10,000)

Net cash provided (used) by investing activities$ (7,000)

Review Problem Review Problem Financing Cash FlowsFinancing Cash Flows

Financing Activities Adjustments/ Financing Explanations Cash Flows

Review Problem Review Problem Financing Cash FlowsFinancing Cash Flows

Financing Activities Adjustments/ Financing Explanations Cash Flows

Issue of common stock

$ 6,000

Review Problem Review Problem Financing Cash FlowsFinancing Cash Flows

Financing Activities Adjustments/ Financing Explanations Cash Flows

Issue of common stock

$ 6,000 Cash dividends

(1,500)

Net cash provided (used) by financing activities$ (4,500)

Review Problem SummaryReview Problem SummaryStatement of Cash FlowsStatement of Cash FlowsXYZ EnterprisesStatement of Cash FlowsFor the Year Ended December 31, 2003

Review Problem SummaryReview Problem SummaryStatement of Cash FlowsStatement of Cash Flows

Cash provided (used) by operating activities $ 3,000

XYZ EnterprisesStatement of Cash FlowsFor the Year Ended December 31, 2003

Review Problem SummaryReview Problem SummaryStatement of Cash FlowsStatement of Cash Flows

Cash provided (used) by operating activities $ 3,000

Cash provided (used) by investing activities (7,000)

XYZ EnterprisesStatement of Cash FlowsFor the Year Ended December 31, 2003

Review Problem SummaryReview Problem SummaryStatement of Cash FlowsStatement of Cash Flows

Cash provided (used) by operating activities $ 3,000

Cash provided (used) by investing activities (7,000)

Cash provided (used) by financing activities 4,500

XYZ EnterprisesStatement of Cash FlowsFor the Year Ended December 31, 2003

Review Problem SummaryReview Problem SummaryStatement of Cash FlowsStatement of Cash Flows

Cash provided (used) by operating activities $ 3,000

Cash provided (used) by investing activities (7,000)

Cash provided (used) by financing activities 4,500

Net increase (decrease) in cash balance $ 500

Beginning cash balance 2,500

Ending cash balance $ 3,000

XYZ EnterprisesStatement of Cash FlowsFor the Year Ended December 31, 2003

C O P Y R I G H T

C o p y r i g h t © 2 0 0 3 , J o h n W i l e y & S o n s , I n c . A l l r i g h t s r e s e r v e d .R e p r o d u c t i o n o r t r a n s l a t i o n o f t h i s w o r k b e y o n d t h a t p e r m i t t e d i n S e c t i o n 1 1 7 o f t h e 1 9 7 6 U n i t e d S t a t e s C o p y r i g h t A c t w i t h o u t t h ee x p r e s s w r i t t e n p e r m i s s i o n o f t h e c o p y r i g h t o w n e r i s u n l a w f u l . R e q u e s t f o r f u r t h e r i n f o r m a t i o n s h o u l d b e a d d r e s s e d t o t h e P e r m i s s i o n s D e p a r t m e n t , J o h n W i l e y & S o n s , I n c . T h e p u r c h a s e r m a y m a k e b a c k - u p c o p i e s f o r h i s / h e r o w n u s e o n l y a n d n o t f o r d i s t r i b u t i o n o r r e s a l e . T h e P u b l i s h e r a s s u m e s n o r e s p o n s i b i l i t yf o r e r r o r s , o m i s s i o n s , o r d a m a g e s , c a u s e d b y t h e u s e o f t h e s e p r o g r a m s o r f r o m t h e u s e o f t h e i n f o r m a t i o n c o n t a i n e d h e r e i n .