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

Statement of Cash FlowsChapter 13Classifications of the Statement of Cash FlowsOperating ActivitiesCash inflows and outflows directly related to earnings from normal operations.Investing ActivitiesCash inflows and outflows related to the acquisition or sale of productive facilities and investments in the securities of other companies.Financing ActivitiesCash inflows and outflows related to external sources of financing (owners and creditors) for the enterprise.Investing ActivitiesOperating ActivitiesFinancing ActivitiesSale of operational assetsSale of investmentsCollections of loansCash received from revenuesIssuance of stockIssuance of bonds and notesCASH INFLOWSBusinessCASH OUTFLOWSPurchase of operational assetsPurchase of investmentsLoans to othersCash paid for expensesPayment of dividendsRepurchase of stockRepayment of debtThis ending cash balance should agree with the balance sheet.Direct Method vs. Indirect MethodTwo Formats for Reporting Operating ActivitiesReports the cash effects of each operating activityDirect MethodStarts with accrual net income and converts to cash basisIndirect MethodNote that no matter which format is used, the same amount of net cash flows from operating activities is generated.Cash Flows from Operating ActivitiesCash Flows from Operating ActivitiesInflows Cash received from:CustomersDividends and interest on investments+Outflows Cash paid for:Purchase of goods for resale and services (electricity, etc.)Salaries and wagesIncome taxesInterest on liabilities_Cash Flows from Investing Activities+Cash Flows from Investing ActivitiesInflows Cash received from:Sale or disposal of property, plant and equipmentSale or maturity of investments in securities_Outflows Cash paid for:Purchase of property, plant and equipmentPurchase of investments in securitiesCash Flows from Financing Activities+_Cash Flows from Financing ActivitiesInflows Cash received from:Borrowings on notes, mortgages, bonds, etc. from creditorsIssuing stock to ownersOutflows Cash paid for:Repayment of principal to creditors (excluding interest, which is an operating activity)Repurchasing stock from ownersDividends to ownersRelationships to the Balance Sheet and the Income Statement Information needed to prepare a statement of cash flows:Comparative Balance Sheets.Income Statement.Additional details concerning selected accounts.Relationships to the Balance Sheet and the Income Statement Cash = Liabilities Stockholders’ Equity Noncash AssetsDerives from . . .Assets = Liabilities Stockholders’ EquityRelationships to the Balance Sheet and the Income StatementReporting and Interpreting Cash Flows from OperatingNet IncomeCash Flows from Operating Activities: Indirect Method+/- Changes in current assets and current liabilities.+ Losses and - Gains+ Noncash expenses such as depreciation and amortization.The indirect method adjusts net income by eliminating noncash items. Use this table when adjusting Net Income to Operating Cash Flows using the indirect method.Reporting and Interpreting Cash Flows from OperatingAdjustment for Gains and LossesGainsGains must be subtracted from net income to avoid double counting the gain.LossesLosses must be added to net income to avoid double counting the loss.Transactions that cause gains and losses should be classified on the statement of cash flows as operating, investing, or financing activities, depending on their dominate characteristics. For example, if the sale of equipment produced a gain, it would be classified as an investing activity. Interpreting Cash Flows from Operating ActivitiesInvestors will not invest in a company if they do not believe that cash generated from operations will be available to pay them dividends or expand the company.Creditors will not lend money if they do not believe that cash generated from operations will be available to pay back the loan.A common rule of thumb followed by financial and credit analysts is to avoid firms with rising net income but falling cash flow from operations. Completing the Statement and Additional DisclosuresThree Required DisclosuresReconciliation of net income to cash flow from operationsNoncash investing and financing activitiesCash paid for interest and income taxesEnd of Chapter 13