Chapter 17-1 Chapter 17 Statement of Cash Flows Accounting Principles, Ninth Edition.

Chapter 17-1

Chapter 17

Statement of

Cash Flows

Accounting Principles, Ninth Edition

Chapter 17-2

UsefulnessUsefulness

ClassificationsClassifications

Significant Significant noncash activitiesnoncash activities

FormatFormat

PreparationPreparation

Indirect and direct Indirect and direct methodsmethods

Step 1: Operating Step 1: Operating activitiesactivities

Step 2: Investing Step 2: Investing and financing and financing activitiesactivities

Step 3: Net Step 3: Net change in cashchange in cash

Free cash flowFree cash flow

Statement of Cash FlowsStatement of Cash FlowsStatement of Cash FlowsStatement of Cash Flows

The Statement of The Statement of Cash Flows: Cash Flows:

Usefulness and Usefulness and FormatFormat

The Statement of The Statement of Cash Flows: Cash Flows:

Usefulness and Usefulness and FormatFormat

Preparing the Preparing the Statement of Statement of Cash Flows—Cash Flows—

Indirect MethodIndirect Method

Preparing the Preparing the Statement of Statement of Cash Flows—Cash Flows—

Indirect MethodIndirect Method

Using Cash Flows Using Cash Flows to Evaluate a to Evaluate a

CompanyCompany

Using Cash Flows Using Cash Flows to Evaluate a to Evaluate a

CompanyCompany

Chapter 17-3 SO 1 Indicate the usefulness of the statement of cash flows.

Provides information to help assess:

1. Entity’s ability to generate future cash flows.

2. Entity’s ability to pay dividends and obligations.

3. Reasons for difference between net income and net cash provided (used) by operating activities.

4. Cash investing and financing transactions during the period.

Usefulness of the Statement of Cash Usefulness of the Statement of Cash FlowsFlowsUsefulness of the Statement of Cash Usefulness of the Statement of Cash FlowsFlows

Chapter 17-4 SO 2 Distinguish among operating, investing, and financing

activities.

Classification of Cash FlowsClassification of Cash FlowsClassification of Cash FlowsClassification of Cash Flows

Income

Statement

Items

Operating Activities

Generally Long-Term Asset Items

Investing Activities

Generally Long-Term Liability and

Equity Items

Financing Activities

Chapter 17-5

Classification of Typical Inflows and Outflows


SO 2 Distinguish among operating, investing, and financing activities.

Operating activities - Income statement itemsCash inflows: From sale of goods or services. From interest received and dividends received.Cash outflows: To suppliers for inventory. To employees for services. To government for taxes. To lenders for interest. To others for expenses.

Illustration 17-1

Chapter 17-6




Investing activities - Changes in investments and long-term assets

Cash inflows: From sale of property, plant, and equipment. From sale of investments in debt or equity

securities. From collection of principal on loans to other entities.Cash outflows: To purchase property, plant, and equipment. To purchase investments in debt or equity securities. To make loans to other entities.

Illustration 17-1

Chapter 17-7




Financing activities - Changes in long-term liabilities and stockholders’ equityCash inflows: From sale of common stock. From issuance of long-term debt (bonds and notes).Cash outflows: To stockholders as dividends. To redeem long-term debt or reacquire capital stock

(treasury stock).

Illustration 17-1

Chapter 17-8

Significant Noncash Activities

1. Issuance of common stock to purchase assets.

2. Conversion of bonds into common stock.

3. Issuance of debt to purchase assets.

4. Exchanges of plant assets.

Companies report these activities in either a separate schedule at the bottom of the statement of cash flows or in a separate note or supplementary schedule to the financial statements.



Chapter 17-9

Order of Presentation:

1. Operating activities.

2. Investing activities.

3. Financing activities.

The cash flows from operating activities section always appears first, followed by the investing and financing sections.

Direct Method

Indirect Method

Format of the Statement of Cash Format of the Statement of Cash FlowsFlowsFormat of the Statement of Cash Format of the Statement of Cash FlowsFlows


Chapter 17-10

Format of the Statement of Cash Format of the Statement of Cash FlowsFlowsFormat of the Statement of Cash Format of the Statement of Cash FlowsFlows


Illustration 17-2

Chapter 17-11

Three Sources of Information:

1. Comparative balance sheets

2. Current income statement

3. Additional information

SO 2 Identify the major classifications of cash flows.

Preparing the Statement of Cash Preparing the Statement of Cash FlowsFlowsPreparing the Statement of Cash Preparing the Statement of Cash FlowsFlows

Three Major Steps: Illustration 17-3

Chapter 17-12 SO 2 Identify the major classifications of cash flows.


Three Major Steps: Illustration 17-3

Chapter 17-13

Indirect and Direct Methods

Companies favor the indirect method for two reasons:

1. It is easier and less costly to prepare, and

2. It focuses on the differences between net income and net cash flow from operating activities.

SO 2 Identify the major classifications of cash flows.


Chapter 17-14 SO 3 Prepare a statement of cash flows using the indirect method.


Demonstration Problem

Indirect Method

Illustration 17-4



Indirect Method

Illustration 17-4




Additional information for 2010:1. The company declared and paid a $29,000 cash dividend.2. Issued $110,000 of long-term bonds in direct exchange for land.3. A building costing $120,000 and equipment costing $25,000 were

purchased for cash.4. The company sold equipment with a book value of $7,000 (cost

$8,000, less accumulated depreciation $1,000) for $4,000 cash.5. Issued common stock for $20,000 cash.6. Depreciation expense was comprised of $6,000 for building and

$3,000 for equipment.

Illustration 17-4


Chapter 17-1 Chapter 17 Statement of Cash Flows Accounting Principles, Ninth Edition.

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Transcript of Chapter 17-1 Chapter 17 Statement of Cash Flows Accounting Principles, Ninth Edition.