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8/14/2019 Financial&managerial accounting_15e williamshakabettner chap 13
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Copyright 2010 by The McGraw-Hill Companies, Inc. AllMcGraw-Hill/Irwin
Statement of Cash FlowsStatement of Cash FlowsChapter 13
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Provides information about the cash
receipts and cash payments of a business
entity during the accounting period.
Purpose of the StatementPurpose of the Statement
Helps investors with questions about the companysHelps investors with questions about the companys
Ability to generate positive cash flows.Ability to generate positive cash flows.
Ability to meet its obligations and to pay dividends.Ability to meet its obligations and to pay dividends.
Need for external financing.Need for external financing.
Investing and financing transactions for the period.Investing and financing transactions for the period.
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The Statement of Cash Flows must
include the following three sections:
Cash Flows from OperatingActivities
Cash Flows from InvestingActivities
Cash Flows from FinancingActivities
Classification of Cash FlowsClassification of Cash Flows
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+
_
Inflows from: Interest and dividends
received
Sales to customers CashFlows fromOperating
Activities
Operating ActivitiesOperating Activities
Outflowsto: Suppliers of merchandise and
services Employees Lenders for interest Governments for taxes
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CashFlows from
Investing
Activities
+
_
Investing ActivitiesInvesting Activities
Inflows from:Sale of investments
and plant assets
Collection of principal
on loans
Outflows to: Purchase investments and
plant assets Purchase debt or equity
investments
Make loans
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+
_
Financing ActivitiesFinancing Activities
Inflows from: Short-term and long-term
borrowing
Owners (for example, fromissuing stock)
Inflows from: Short-term and long-term
borrowing
Owners (for example, fromissuing stock)
Outflows to:
Make payments on borrowedfunds
Owners for dividends Purchase treasury stock
Outflows to:
Make payments on borrowedfunds
Owners for dividends Purchase treasury stock
CashFlows from
Financing
Activities
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Cash Equivalents
CashCash
Currency
Short-term, highly liquid investments. Readily convertible into cash. So near maturity that market value is unaffected
by interest rate changes.
Cash and Cash EquivalentsCash and Cash Equivalents
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Direct Method: CashDirect Method: Cash
Received from CustomersReceived from CustomersAccrual basis revenue includes sales
that did not result in cash inflows.
Can be computed as:
CashReceived from
Customers
Decrease inreceivables
Increase inreceivables
Increase inreceivables
+
=
=
Net Sales
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Direct Method: Interest andDirect Method: Interest and
Dividends ReceivedDividends Received
Di t M th d C h P idDi t M th d C h P id
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Direct Method: Cash PaidDirect Method: Cash Paidfor Purchases offor Purchases of
MerchandiseMerchandiseStep 1
Step 2
R ili N t IR ili N t I
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Reconciling Net IncomeReconciling Net Incomewithwith
Net Cash FlowsNet Cash Flows There are two major categories ofreconciling items. They include
adjusting for:
1. Noncash Expenses.
2. Timing Differences.
Accounts receivableAccounts receivableDepreciation ExpenseDepreciation Expense
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NetIncome
Cash Flows from
OperatingActivities
Reporting Operating CashReporting Operating Cash
Flows by the Indirect MethodFlows by the Indirect Method
Changes in current assets and current
liabilities as shown on the following table
+ Losses and
- Gains
+ Noncash
expenses such asdepreciation and
amortization
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Use this table when adjusting NetIncome to Operating Cash Flows.
Reconciling Net Income withReconciling Net Income with
Net Cash FlowsNet Cash Flows
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Supplemental InformationSupplemental Information
Supple
We are required to disclose information concerning
major investing and financing activities that do not
involve cash.
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End of Chapter 13End of Chapter 13