Post on 01-Jan-2016
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HFT 3431HFT 3431
Chapter 4Chapter 4
Statement of Cash FlowsStatement of Cash Flows
The Statement of Cash Flows Answers
How Much Cash Was Provided by Operations
What Amount of Property and Equipment Was Purchased
How Much Long Term Debt Was Borrowed
The Statement of Cash Flows Answers
What Funds Were Raised by the Sale of Capital Stock
What Amount of Dividends Were Paid How Much Was Invested in Long Term
Investments
The Statement of Cash Flows
Required Statement Since 1988 by the FASB
Replaces the Statement of Changes in Financial Position
The Statement of Cash Flows
Focused on Cash Changes From Operating Activities Investing Activities Financing Activities
Purpose for Completing the Purpose for Completing the SCFSCF
Statements are done on the accrual Statements are done on the accrual basisbasis
Reconciles changes in cash position Reconciles changes in cash position with the financial statementswith the financial statements
When would it not be necessary to When would it not be necessary to complete a Statement of Cash complete a Statement of Cash Flows?Flows?
The Statement of Cash Flows
Cash = Cash + Cash Equivalents
–Equivalents = Short term investments of 90 days or less
–Transfers between cash and equivalents are not listed on SCF
Use and Purpose of The Statement of Cash Flows
Assess Ability to Generate Future Cash Flows
Assess Ability to Meet Current Obligations
Shows the Difference Between Net Income and Cash Generated
Use and Purpose of The Statement of Cash Flows
Shows the Effect of Cash and Non Cash Financing and Investing Activities
Internal and External Users
Use and Purpose of The Statement of Cash Flows
Management Assess Liquidity Assess Financial Flexibility Determine Dividend Policy Plan Investing and Financing
Use and Purpose of The Statement of Cash Flows
Investors and Creditors Assess Ability to Pay Bills Assess Ability to Pay Dividends Assess Need for Financing
Six Steps...
Determine Change in Cash Account - The “Answer”
Summarize Operating Activities
Cash in From Sale of Services
Cash in From Interest and Dividends
Cash Out for Expenses & Taxes
Cash Out for Interest on Debt
Six Steps...
Summarize Investing Activities
Cash in From Property Sales
Cash in From Investment and Security Sales
Cash Out for Loans and Purchases of Property and Investments
Six Steps...
Summarize Financing Activities
Cash in From Sale of Stock
Cash in From Issuing Debt
Cash Out for Paying Debt Principal
Cash Out for Treasury Stock
Cash Out for Dividends
Six Steps...
Schedule of Non-cash Investing and Financing Activities
Exchange of Capital Stock for Property and Equipment
Capital Lease Obligations Incurred
Six Steps...
Present the Statement of Cash Flows
Cash Flows From Operating Activities
Cash Flows From Investing Activities
Cash Flows From Financing Activities
Six Steps...
Present the Statement of Cash Flows Continued
Net Increase (Decrease) in Cash
Cash At Beginning of Period
Cash At End of Period (given)
Supplemental Schedule - Non Cash Transactions
Operating Activities - Direct Method
Accrual Accounting - Recognize Expenses When Incurred Revenue When Earned.
Convert Each Item on the Income Statement From Accrual Basis Accounting to Cash Basis Accounting
Accounting for Changes in Accounts
A Decrease in an Asset Is Added to Net Income
An Increase in an Asset Is Deducted From Net Income
Accounting for Changes in Accounts
A Decrease in a Liability / Equity Account Is Deducted From Net Income
An Increase in a Liability / Account Is Added to Net Income
Completing the Statement of Completing the Statement of Cash FlowsCash Flows
Begin with Net IncomeBegin with Net Income Add or Subtract Changes in Balance Add or Subtract Changes in Balance
Sheet AccountsSheet Accounts Add Together – Should Give you Add Together – Should Give you
Change in Cash for the PeriodChange in Cash for the Period Add to Beginning Cash BalanceAdd to Beginning Cash Balance Should Equal Ending Cash BalanceShould Equal Ending Cash Balance