Adeng Pustikaningsih, M.Si. Dosen Jurusan Pendidikan ...staff.uny.ac.id/sites/default/files/pendidikan/adeng-pustikaningsih-se... · Dosen Jurusan Pendidikan Akuntansi Fakultas Ekonomi

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Adeng Pustikaningsih, M.Si.

Dosen Jurusan Pendidikan Akuntansi

Fakultas Ekonomi

Universitas Negeri Yogyakarta

CP: 08 222 180 1695

Email : [email protected]

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Statement of Cash Flows

16

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1. Summarize the types of cash flow

activities reported in the statement of

cash flows. 2. Prepare a statement of cash flows,

using the indirect method.

3. Prepare a statement of cash flows,

using the direct method.

After studying this chapter, you should

be able to:

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Summarize the types of

cash flow activities

reported in the

statement of cash flows.

Objective 1

16-1

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16-1

The statement of cash flows reports a

firm’s major cash inflows and outflows

for a period. It provides useful

information about a firm’s ability to

generate cash from operations,

maintain and expand its operating

capacity, meet its financial obligations,

and pay dividends.

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Reporting Cash Flows 16-1

The statement of cash flows reports cash flows

from three types of activities:

1. Cash flows from operating activities are cash

flows from transactions that affect net income.

2. Cash flows from investing activities are cash

flows from transactions that affect the investments

in noncurrent assets.

3. Cash flows from financing activities are cash

flows from transactions that affect the equity and

debt of the business.

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16-1 Statement of Cash Flows—

NetSolutions

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(payments for treasury stock, dividends,

and redemption of debt securities)

Financing

(payments for

expenses)

Operating

Sources (increases) of Cash Uses (decreases) of Cash

(receipts from sales of

noncurrent assets)

Investing

(receipts from issuing

equity and debt

securities)

Financing

(payments for

acquiring noncurrent

assets)

Investing

(receipts from

revenues)

Operating

Exhibit 2 Cash Flows 16-1

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Cash Flows from Operating Activities 16-1

The direct method reports the

sources of operating cash and

the uses of operating cash. 8

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16-1

The indirect method reports the operating cash

flows by beginning with net income and

adjusting it for revenues and expenses that do

not involve the receipt or payment of cash. 9

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16-1

Cash inflows from operating activities

normally arise when cash is received

from customers.

Cash outflows from operating activities

normally arise when cash is paid to

suppliers for merchandise, supplies,

services and to employees for salaries

and wages.

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16-1

A primary advantage of the direct

method is that it reports the sources

and uses of operating cash flows in

the statement of cash flow.

A primary disadvantage of the direct

method is that the necessary data

may not be readily available and may

be costly to gather.

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16-1

A primary advantage of the indirect

method is that it focuses on the

differences between net income and

cash flows from operations.

Because the data are readily available,

another advantage of the indirect

method is that it is normally less costly

to use than the direct method.

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Cash Flows from Operations:

Direct and Indirect Methods—

NetSolutions

16-1

same amount

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Cash Flows from Investing Activities 16-1

Cash inflows from investing activities

normally arise from selling fixed assets,

investments, and intangible assets.

Cash outflows from investing activities

normally include payments to acquire

fixed assets, investments, and intangible

assets.

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Cash Flows from Financing Activities 16-1

Cash inflows from financing activities

normally arise from issuing debt or equity

securities.

Cash outflows from financing activities

normally include paying cash dividends,

repaying debt, and acquiring treasury

stock.

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Noncash Investing and Financing

Activities 16-1

Noncash investing and financing

activities are transactions that do not

involve cash. The effect of such

transactions is recorded in a separate

schedule that appears at the bottom of

the statement of cash flows.

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16-1

I M P O R T A N T

The financial statements,

including the statement of

cash flows, should not report

cash flow per share.

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Example Exercise 16-1

16-1

For each of the following, identify whether it would

be disclosed as an operating, financing, or investing

activity on the statement of cash flows under the

indirect method.

a. Purchase patent

b. Pay cash dividend

c. Disposal of

equipment

d. Net income

e. Purchase treasury stock

f. Depreciation expense

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For Practice: PE 16-1A, PE 16-1B

Follow My Example 16-1

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16-1

a. Investing

b. Financing

c. Investing

d. Operating

e. Financing

f. Operating

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Prepare a statement of

cash flows, using the

indirect method.

Objective 2

16-2

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16-2

An efficient approach to preparing the

statement of cash flows is to analyze the

changes in the noncash balance sheet

accounts. The logic of this approach is that a

change in any balance sheet account

(including Cash) can be analyzed in terms of

changes in the other balance sheet accounts.

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The analysis of Retained Earnings

provides a good starting point for

determining the cash flows from

operating activities, which is the first

section of the statement of cash flows.

16-2

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16-2 Comparative Balance Sheet

(Continued)

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16-2 Comparative Balance Sheet

(Concluded)

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16-2 Retained Earnings

The Retained Earnings account for Rundell Inc. reveals

that the balance increased Rp80,000,000 during the year.

ACCOUNT Retained Earnings ACCOUNT NO. 32

Balance

Date Item Debit Credit Debit Credit 2008 Jan. 1 Balance 202,300,000

Dec. 31 Net income 108,000,000 310,300,000

31 Cash dividends 28,000,000 282,300,000

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16-2

ACCOUNT Retained Earnings ACCOUNT NO. 32

Balance


Dec. 31 Net income 108,000,000 310,300,000

31 Cash dividends 28,000,000 282,300,000

The net income of Rp108,000,000 is entered on the

statement (or working papers).

To statement

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Operating Activities— Rundell Inc.

Cash flows from operating activities: Net income Rp108,000,000 Adjustments to reconcile net income to net cash flow from operating activities:

This phrase is added to indicate

that accrual basis net income is

being adjusted to arrive at cash

flows from operations.

16-2

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Next, we need to determine

depreciation expense for the year. If it

isn’t given in the income statement,

sometimes it can be found by

analyzing the various accumulated

depreciation accounts.

16-2 Depreciation

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16-2

ACCOUNT Accumulated Depreciation—Building ACCT.NO.

Balance


Dec. 31 Depr. for year 7,000,000 65,300,000

to statement

The comparative balance sheet (Exhibit 4: Slides 23 and 24)

indicates that Accumulated Depreciation—Building increased

by Rp7,000,000. By analyzing the account we can see that the

increase is the result of the year-end adjusting entry.

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The offsetting Rp7,000,000 debit is

to an expense for depreciation. The

effect on the income statement was

to reduced net income; however,

this expense did not require an

outflow of cash. Therefore, the

Rp7,000,000 is added back to net

income in determining cash flows

from operating activities.

16-2

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Amortization is treated in

the same manner as

depreciation.

16-2

Cash flows from operating activities: Net income Rp108,000,000 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation Rp 7,000,000

Operating Activities—Rundell Inc.

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16-2 Gain on Sale of Land

The ledger or income statement of Rundell

Inc. indicates that the sale of land resulted

in a gain of Rp12,000,000. This gain

increased net income by Rp12,000,000, yet

cash flows was provided by an investing

activity (selling land) rather than an

operating activity, so the gain is deducted

from net income on the statement of cash

flows.

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16-2 Operating Activities—Rundell Inc.

Cash flows from operating activities: Net income Rp108,000,000 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation Rp7,000,000 Gain on sale of land (12,000,000)

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16-2

PT Oktora’s accumulated depreciation increased by

Rp12,000,000, while patents decreased by

Rp3,400,000 between balance sheet dates. There

were no purchases or sales of depreciable or

intangible assets during the year. In addition, the

income statement showed a gain of Rp4,100,000

from sale of land. Reconcile a net income of

Rp50,000,000 to net cash flow from operating

activities.

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16-2

Net income Rp50,000,000

Adjustments to reconcile net income

from operating activities:

Depreciation 12,000,000

Amortization 3,400,000

Gain on sale of land (4,100,000)

Net cash flow from operating activities Rp61,300,000

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Next, select current assets and

current liabilities that impact cash

flows and determine their increases

and decreases. Exhibit 5 in the next

slide my prove to be helpful in

determining how to treat increases

and decreases in noncash current

operating assets and current

operating liabilities.

16-2 Changes in Current Operating Assets

and Liabilities

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16-2 Adjustments to Net Income

(Loss) Using the Indirect Method

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Changes in Current Accounts (in ‘000 Rp)

Accounts

Accounts receivable (net) Rp 74,000 Rp 65,000

Inventories 172,000 180,000

Accounts payable (mdse.) 43,500 46,700

Accrued expenses payable 26,500 24,300

Income taxes payable 7,900 8,400

9,000

8,000*

3,200*

2,200

500*

2008 2007

December 31 Increase

Decrease*

16-2

Note that Cash and Dividends Payable are not

included in this analysis.

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Cash flows from operating activities: Net income Rp108,000,000 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation 7,000,000 Gain on sale of land (12,000,000) Changes in current operating assets and liabilities: Increase in accounts receivable (9,000,000) Decrease in inventory 8,000,000 Decrease in accounts payable (3,200,000) Increase in accrued expenses 2,200,000 Decrease in income taxes payable (500,000)

16-2 Operating Activities—Indirect Method

39 You will notice that increases actually decrease cash flows from

operating activities, and decreases do just the opposite.

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Indirect Method for Rundell Inc.

(Operating Activities Section)

16-2

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Same information as Slide 39, only in final form.

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16-2

Victor Corporation’s comparative balance sheet for

current assets and current liabilities was as follows:

Dec. 31, 2009 Dec. 31, 2008

Accounts receivable Rp 6,500,000 Rp 4,900,000

Inventory 12,300,000 15,000,000

Accounts payable 4,800,000 5,200,000

Dividends payable 5,000,000 4,000,000

Adjust net income of Rp70,000,000 for changes

in operating assets and liabilities.

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16-2


Adjustments to reconcile net income to net

cash from from operating activities:

Increase in accounts receivable (1,600,000)

Decrease in inventory 2,700,000

Decrease in accounts payable (400,000)


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16-2

Omicron, Inc. reported the following data:

Prepare the cash flow for operating activities

section of the statement of cash flows using the

indirect method.


Depreciation expense 12,000,000

Loss on disposal of equipment 15,000,000

Increase in Accounts receivable 5,000,000

Decrease in Accounts payable (2,000,000)

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16-2

Cash flows from operating activities:


Adjustments to reconcile net income

to net cash flow from operating activities:

Depreciation 12,000,000

Loss from disposal of equipment 15,000,000

Changes in current operating assets

and liabilities:

Increase in accounts receivable (5,000,000)

Decrease in accounts payable (2,000,000)


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16-2 Cash Flows Used for Payment of

Dividends

ACCOUNT Dividends Payable ACCOUNT NO.

Balance


10 Cash paid 10,000,000 —

June 20 Dividends declared 14,000,000 14,000,000

July 10 Cash paid 14,000,000 —

Dec. 20 Dividends declared 14,000,000 14,000,000

Note that while Rp28,000,000 in dividends were

declared, only Rp24,000,000 were paid during the year.

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Because paying of dividends

affects equity and is an

outflow of cash, it is a

negative Rp24,000,000 cash

flows from financing

activities transaction.

16-2

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16-2 Common Stock

Common Stock increased by Rp8,000,000.

ACCOUNT Common Stock ACCOUNT NO.

Balance


Nov. 1 4,000 shares issued/cash 8,000,000 24,000,000

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16-2

ACCOUNT Paid-in Capital in Excess of Par—Common Stock

Balance


Nov. 1 4,000 shares issued/cash 40,000 120,000,000

Analyzing the two accounts together, we can determine

that the 4,000 shares were sold for Rp48,000,000.

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Issuing common stock affects

equity; therefore, we have a

positive Rp48,000,000 cash flows

from financing activities item.

16-2

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16-2 Bonds Payable

Bonds Payable decreased by Rp50,000,000.

ACCOUNT Bonds Payable ACCOUNT NO.

Balance


June 30 Retired by payment of

cash at face amount 50,000,000 100,000,000

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Retiring bonds is a cash outflow

reported as a negative item

under cash flows from

financing activities.

16-2

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16-2 Building

ACCOUNT Building ACCOUNT NO.

Balance

Date Item Debit Credit Debit Credit 2008

Jan. 1 Balance 200,000,000

Dec. 27 Purchased for cash 60,000,000 260,000,000

By examining the Building account, we can determine that

Rundell Inc. bought a building for Rp60,000,000 cash.

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Purchasing a building involves a

noncurrent asset, so this is a

negative cash flows from

investing activity.

16-2

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16-2 Land

ACCOUNT Land ACCOUNT NO.

Balance

Date Item Debit Credit Debit Credit 2008

Jan. 1 Balance 125,000,000

June 8 Sold for Rp72,000,000 cash 60,000,000 65,000,000

Oct. 12 Purchased for Rp15,000,000

cash 15,000,000 80,000,000

The Rp45,000,000 decline in the Land account resulted

from two separate transactions: a sale and a purchase.

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The first transaction, the sale of

land, is classified as a positive

cash flows from investing activity

because land is a noncash asset.

16-2

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The Rp12,000,000 gain was

recorded earlier on Slide 34

as an operating activity. The

purchase of land also is an

investing activity.

Click the button to view

Slide 34. To return to

this slide, type “56” and

press the “Enter” key.

16-2

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16-2

The second transaction is the

purchase of land for cash of

Rp15,000,000. This

transaction is reported as an

outflow of cash in the cash

flows from investing

activities section.

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Statement of Cash Flows—


(Partial Statement)

16-2

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Statement of Cash Flows—


(Partial Statement)

16-2

The ending balance in the Cash account

should match this amount.

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16-2

Alpha Corporation purchased land for

Rp125,000,000. Later in the year the company

sold land with a book value of Rp165,000,000

for Rp200,000,000. How are the effects of

these transactions are reported on the statement

of cash flows?

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16-2

The gain on sale of land is deducted

from net income as shown below: Gain on sale of land Rp(35,000,000)

Cash received for sale of land Rp200,000,000

Cash paid for purchase of land (125,000,000)

The purchase and sale of land is

reported as part of cash inflow form

investing activities as shown below:

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Prepare a statement of

cash flows, using the

direct method.

Objective 3

16-3

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The final amount for cash

flows from operating

activities will be the same

whether the direct or

indirect approach is used.

The methods differ in

how the data are obtained,

analyzed, and reported.

The Direct Method 16-3

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Exhibit 8 Data for Direct Method 16-3

PT Rudy Pelangi

Schedule of Changes in Current Accounts (in ‘000 Rp)

December 31

Accounts 2008 2007 Decrease*

Increase

Cash Rp 97,500 Rp 26,000 Rp 71,500

Accounts receivable (net) 74,000 65,000 9,000

Inventories 172,000 180,000 8,000*

Accounts payable (merchandise

creditors) 43,500 46,700 3,200*

Accrued expenses payable (operating

expenses) 26,500 24,300 2,200

Income taxes payable 7,900 8,400 500*

Dividends payable 14,000 10,000 4,000

(Continued)

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16-3

Sales Rp1,180,000

Cost of merchandise sold 790,000

Gross profit Rp 390,000

Operating expenses:

Depreciation expense Rp 7,000

Other operating expenses 196,000

Total operating expenses 203,000

Income from operations Rp 187,000

Other income:

Gain on sale of land Rp 12,000

Other expense:

Interest expense 8,000 4,000

Income before income tax Rp 191,000

Income tax 83,000

Net income Rp 108,000

PT Rudy Pelangi Income Statement

For the Year Ended December 31, 2008 (in ‘000 Rp)

(Concluded)

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Cash Received from Customers 16-3

The Rp1,180,000,000 of sales

for Rundell Inc. is reported

using the accrual method. An

adjustment is necessary to

convert the sales reported on

the income statement to the

cash method.

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Sales Rp1,180,000



Operating expenses:





Other income:


Other expense:



Income tax 83,000




Changes Cash received

from customers

Sales Rp1,180,000

Cash received

from customers Rp1,171,000

Increase in accounts rec. (9,000)

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Sales Rp1,180,000



Operating expenses:





Other income:


Other expense:



Income tax 83,000




Changes Cash received

from customers

Sales Rp1,180,000

Increase in accounts rec. (9,000)

Cash received

from customers Rp1,171,000

CASH

BASIS

Rp1,171,000

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16-3

Sales reported on the income statement were

Rp350,000,000. The accounts receivable

balance declined Rp8,000,000 over the year.

Determine the amount of cash received from

customers.



Sales Rp350,000,000

Add decrease in accounts receivable 8,000,000

Cash received from customer Rp358,000,000

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Cash Payments for Merchandise 16-3

Sales Rp1,180,000



Operating expenses:





Other income:


Other expense:



Income tax 83,000




CASH

BASIS

Rp1,171,000

Cash payments for

merchandise Changes

Cost of merchandise sold Rp790,000

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16-3

Sales Rp1,180,000



Operating expenses:





Other income:


Other expense:



Income tax 83,000




CASH

BASIS

Rp1,171,000

Cost of merchandise sold

Changes Cash payments for

merchandise

Decrease in inventories (8,000)

Decrease in accounts payable 3,200

Cash payments for

merchandise Rp785,200

Rp790,000

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16-3

Sales Rp1,180,000



Operating expenses:





Other income:


Other expense:



Income tax 83,000




CASH

BASIS

Rp1,171,000

(785,200)

Cost of merchandise sold

Changes Cash payments for

merchandise

Decrease in inventories (8,000)

Decrease in accounts payable 3,200

Cash payments for

merchandise Rp785,200

Rp790,000

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16-3

Cost of merchandise sold reported on the income

statement was Rp145,000,000. The accounts payable

balance increased Rp4,000,000, and the inventory

balance increased by Rp9,000,000 over the year.

Determine the amount of cash paid for merchandise.



Cost of merchandise sold Rp145,000,000

Add increase in inventories 9,000,000

Deduct increase in accounts payable (4,000,000)

Cash payments for merchandise Rp150,000,000

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Cash Payments for Operating Expenses 16-3

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Sales Rp1,180,000



Operating expenses:





Other income:


Other expense:



Income tax 83,000




CASH

BASIS

Rp1,171,000

(785,200)

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16-3

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Sales Rp1,180,000



Operating expenses:





Other income:


Other expense:



Income tax 83,000




CASH

BASIS

Rp1,171,000

(785,200)

0

There is no cash flow for

depreciation expense.

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16-3

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Sales Rp1,180,000



Operating expenses:





Other income:


Other expense:



Income tax 83,000




CASH

BASIS

Rp1,171,000

(785,200)

0

Changes

Operating expenses (other than

depreciation)

Changes

Cash payments for

operating expenses

(193,800)

Rp196,000

Increase in accrued expenses (2,200)

Cash payments for operating

expenses Rp193,800

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16-3

Sales Rp1,180,000



Operating expenses:





Other income:


Other expense:



Income tax 83,000


PT Rudy Pelangi. Income Statement


CASH

BASIS

Rp1,171,000

(785,200)

0

(193,800)

0

Gain on Sale of Land

77

To avoid

confusion, page

numbers for the

remaining slides

are centered on

the slides.

The gain on sale of land of

Rp12,000,000 is included in the

proceeds from the sale of land, which

is reported as part of cash flows from

investing activities.

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16-3

Sales Rp1,180,000



Operating expenses:





Other income:


Other expense:



Income tax 83,000




CASH

BASIS

Rp1,171,000

(785,200)

0

(193,800)

0

Gain on Sale of Land

Interest expense

Changes Cash paid for interest expense

8,000

+/- decrease/increase in

payable 0

Cash payments for interest $8,000

(8,000)

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16-3

Sales Rp1,180,000



Operating expenses:





Other income:


Other expense:



Income tax 83,000




CASH

BASIS

Rp1,171,000

(785,200)

0

(193,800)

0

Cash Payments for Income Taxes

(8,000)

Income tax expense

Changes Cash payments for income taxes

Rp83,000

Add decrease in income

taxes payable 500

Cash payments for income tax Rp83,500

(83,500) 79

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16-3

Sales Rp1,180,000



Operating expenses:





Other income:


Other expense:



Income tax 83,000




CASH

BASIS

Rp1,171,000

(785,200)

0

(193,800)

0

Cash Payments for Income Taxes

(8,000)

(83,500)

Rp 100,500 80

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Direct Method (Operating

Activities Section)

(Continued)

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Direct Method (Reconciliation)

A reconciliation is required when

the direct method is used.

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16-3 Financial Analysis and Interpretation

Free cash flow is a measure of

operating cash flow available for

corporate purposes after providing

sufficient fixed asset additions to

maintain current productive

capacity and dividends.

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Cash flow from operations

Less: Investments in fixed assets to

maintain current production

Free cash flow

16-3 Free Cash Flow

Positive free cash flow is considered favorable.

A company that has free cash flow is able to

fund internal growth, retire debt, pay

dividends, and enjoy financial flexibility.

Documents

Adeng Pustikaningsih, M.Si. Dosen Jurusan Pendidikan ...staff.uny.ac.id/sites/default/files/pendidikan/adeng-pustikaningsih-se... · Dosen Jurusan Pendidikan Akuntansi Fakultas Ekonomi