1、Lesson Eight:Statement of Cash Flows Aims:1.Explain the concept of The Cash Flow Statements.2.Classify activities affecting cash as operating,investing,or financing activities.3.Use the direct method to measure cash flows.4.Determine cash flows from income statement and balance sheet accounts.5.Use
2、the indirect method to calculate cash flows from operations.8.1Introduction to Statement of Cash Flows A statement of cash flows reports the cash receipts and cash payments of an entity during a period.It explains the causes for the changes in cash by providing information about operating,financing
3、and investing activities.8.2Classification of a Firms Activities Affecting Cash(1)operating management is primarily concerned with major day-to-day activities that generate revenues and expenses(operating activities);and(2)financial management is largely concerned with where to get cash(financing ac
4、tivities)and how to use cash(investing activities).8.3Two Methods of Computing Cash Flows from Operating Activities Two approaches can be used to compute the number reported as cash flow from operating activities.(1)Computing it as collections less operating disbursements is called the direct method
5、;(2)Adjusting the accrual net income to reflect only cash outlays is called indirect method.8.4Transactions Affecting Cash Flows from All SourcesTYPE OF TRANSACTIONCASHOperating ActivitiesSales of goods and services for cash+Sales of goods and services on credit0Receive dividends or interest+Collect
6、ion of accounts receivable+Recognize cost of goods sold0Purchase inventory for cash-Purchase inventory on credit0Pay trade accounts payable-Accrue operating expenses0Pay operating expenses-Accrue taxes0Pay taxes-Accrue interest0Pay interest-Prepay expenses for cash-Write off prepaid expenses0Charge
7、depreciation or amortization0Investing ActivitiesPurchase fixed asset for cash-Purchase fixed assets by issuing debt0Sell fixed assets+Purchase securities that are not cash equivalents-Sell securities that are not cash equivalents+Make a loan-Financing ActivitiesIncrease long-term or short-term debt
8、+Reduce long-term or short-term debt-Sell common or preferred stock+Repurchase and retire common or preferred stock-Purchase treasury stock-Pay dividends-Convert debt to common stock0Reclassify long-term debt to short-term debt08.5Preparing a Statement of Cash Flows Using the Direct Method Cash flow
9、s from operating activities:(1)Collections from sales to customers are almost always the major operating activity.(2)Disbursements for purchases of goods to be sold and operating expenses are almost always the major operating cash outflows.(3)The excess of collection over disbursements is net cash p
10、rovided by operating activities.8.6Preparing a Statement of Cash Flows Using the Indirect Method The indirect method of computing cash flows from operating activities reconciles net income to the net cash provided by operating activities.(1)Depreciation is added back to net income because it is a no
11、n-cash item.(2)Add decreases in non-cash current assets.(3)Add increases in current liabilities.(4)Deduct increases in non-cash current assets.(5)Deduct decreases in current liabilities.8.9Computing Cash Flows from Operating Activities Operating cash inflows minus operating cash outflows equals the
12、net cash provided by(or used by)operating activities.Collections from sales to customers are usually the largest source of operating cash inflows.Disbursements for purchases of goods to be sold and operating expenses are usually the largest sources of operating cash outflows.8.10Computing the Cash C
13、ollections from CustomersSales$400 000Beginning accounts receivable50 000Potential collections$450 000Ending accounts receivable(90 000)Cash collections from customers$360 000Sales$400 000Decrease(increase)in accounts receivable(40 000)Cash collections from customers$360 0008.11Computing the Cash Pa
14、yments to Suppliers The difference between cost of goods sold and cash payments to suppliers can be determined by looking at inventory and accounts payable.Ending inventory$200 000Cost of goods sold200 000Inventory to account for$400 000Beginning inventory(120 000)Purchases of inventory$280 000Begin
15、ning accounts payable$12 000Purchases of inventory280 000Total amount to be paid in cash$292 000Ending accounts payable(148 000)Accounts paid in cash$144 000 The effects of inventory and accounts payable on the previous slide can be combined into one calculation as follows:Cost of goods sold$200 000
16、Increase(decrease)in inventory80 000Decrease(increase)in accounts payable(136 000)Payments to suppliers$144 0008.12Computing the Cash Payments to EmployeesBeginning wages and salaries payable$8 000Wages and salaries expense72 000Total to be paid in cash$80 000Ending wages and salaries payable(50 000)Cash payments to employees$30 000Wages and salaries expense$72 000Decrease(increase)in wages and salaries payable(42 000)Cash payments to employees$30 000
