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Chapter 4 1 Cash, Short-term Investments and Accounts Receivable Chapter 4
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Chapter 4 1
Cash, Short-term Investments
and Accounts Receivable
Chapter 4
Chapter 10Statement of Cash Flows
Chapter 10 3
Chapter 10Learning Objectives
•Identify and distinguish among operating, investing, and financing activities.
•Prepare a statement of cash flows using the indirect method.
•Prepare a statement of cash flows using the direct method.
•Identify the principal users of the statement of cash flows for financial decision makers.
•Compute an interpret cash flows ratios, cash flow per share, and free cash flows.
Chapter 10 4
Three Types of Cash Flows
OPERATINGINVESTINGFINANCING
Chapter 10 5
The Statement of Cash Flows
Chapter 10 6
Summary of Transaction Classifications for the SCF
Chapter 10 7
Summary of Transaction Classifications for the SCF
Chapter 10 8
Summary of Transaction Classifications for the SCF
Chapter 10 9
Gilbert Company purchases $100,000 face value 10% bonds from Garbo Company for $100,000 cash. This will appear on Gilbert’s statement of cash flows as a
a. cash inflow from operating activities.
b. cash inflow from investing activities.
c. cash outflow from investing activities.
d. cash outflow from financing activities.
Chapter 10 10
Gilbert Company purchases $100,000 face value 10% bonds from Garbo Company for $100,000 cash. This will appear on Gilbert’s statement of cash flows as a
a. cash inflow from operating activities.
b. cash inflow from investing activities.
c. cash outflow from investing activities.
d. cash outflow from financing activities.
Chapter 10 11
Browning Company issued 2,000 shares of its $5 par value common stock for $6 cash per share. This will appear on Browning’s statement of cash flows as a
a. cash inflow from operating activities.
b. cash inflow from financing activities.
c. cash outflow from investing activities.
d. cash outflow from financing activities.
Chapter 10 12
Browning Company issued 2,000 shares of its $5 par value common stock for $6 cash per share. This will appear on Browning’s statement of cash flows as a
a. cash inflow from operating activities.
b. cash inflow from financing activities.
c. cash outflow from investing activities.
d. cash outflow from financing activities.
Chapter 10 13
Browning Company borrowed $50,000 by issuing a long-term note payable. This will appear on Browning’s statement of cash flows as a
a. cash inflow from operating activities.
b. cash outflow from financing activities.
c. cash outflow from investing activities.
d. cash inflow from financing activities.
Chapter 10 14
Browning Company borrowed $50,000 by issuing a long-term note payable. This will appear on Browning’s statement of cash flows as a
a. cash inflow from operating activities.
b. cash outflow from financing activities.
c. cash outflow from investing activities.
d. cash inflow from financing activities.
Chapter 10 15
Direct Method:--operating section lists specific cash inflows and outflows from operating activities
Indirect Method:--the net cash flow from operating activities is determined by making certain adjustments to net income
Methods for Reporting Cash Flows from Operations
(More informative)
(Reconciliation required by GAAP)
Chapter 10 16
Cash flows from operating activities:Receipts from customers $575,043Payments to suppliers (424,607)Payments to employees (108,646)Payments for insurance (2,428)Receipt of interest on bank savings 3,454Payments of interest on capital leases (7,273)Payments of income taxes (15,230)
Net cash provided by operating activities $20,313
Direct Method Example
Chapter 10 17
Cash flows from operating activities:Net Income $61,386 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation 29,738Loss on sale of equipment 460Increase in Accounts Receivable (24,957)Increase in Inventory (12,684)Decrease in Prepaid Insurance 2,575Decrease in Accounts Payable (38,405)Increase in Income Taxes Payable 2,200
Net cash provided by operating activities $20,313
Indirect Method Example
Chapter 10 18
Indirect Method – Start With Net Income
Chapter 10 19
On a statement of cash flows prepared using the indirect method, depreciation expense is
a. added under the operating activities.
b. deducted under the financing activities.
c. ignored.
d. added under the investing activities.
Chapter 10 20
On a statement of cash flows prepared using the indirect method, depreciation expense is
a. added under the operating activities.
b. deducted under the financing activities.
c. ignored.
d. added under the investing activities.
Chapter 10 21
On a statement of cash flows prepared using the indirect method, a loss on the sale of equipment is
a. deducted under the operating activities.
b. deducted under the financing activities.
c. ignored.
d. added under the operating activities.
Chapter 10 22
On a statement of cash flows prepared using the indirect method, a loss on the sale of equipment is
a. deducted under the operating activities.
b. deducted under the financing activities.
c. ignored.
d. added under the operating activities.
Chapter 10 23
On a statement of cash flows prepared using the indirect method, a decrease in accounts receivable is
a. deducted under the investing activities.
b. deducted under the financing activities.
c. added under the operating activities.
d. added under the investing activities.
Chapter 10 24
On a statement of cash flows prepared using the indirect method, a decrease in accounts receivable is
a. deducted under the investing activities.
b. deducted under the financing activities.
c. added under the operating activities.
d. added under the investing activities.
Chapter 10 25
Direct Method
• Convert credit sales on the income statement to cash collected on account.
• Convert cost of goods sold on the income statement to cash paid for inventory.
• Convert operating expenses reported on the income statement to cash paid for operating expenses.
• Convert interest expense on the income statement to cash paid for interest.
• Convert income tax expense on the income statement to cash paid for income tax.
Chapter 10 26
Converting Credit Sales into Cash Collected
Assume beginning accounts receivable is $0, credit sales are $600,000, and ending accounts receivable is $24,957.
Solve for cash collected on account.
Chapter 10 27
Converting Cost of Goods Sold into Cash Paid for Inventory
Assume beginning inventory is $17,954, cost of goods sold is $398,156, and ending inventory is $30,638.
Solve for purchases of inventory.
Chapter 10 28
Converting Cost of Goods Sold into Cash Paid for Inventory Continued
Assume beginning accounts payable is $52,100, purchases are $410,840, and ending accounts payable is $13,695.
Solve for cash payments to suppliers.
Chapter 10 29
Converting Income Tax Expense into Cash Paid for Taxes
Assume beginning taxes payable is $3,000, income tax expense is $24,150,and ending taxes payable is $800.
Solve for cash payments for taxes.
Chapter 10 30
Converting Insurance Expense into Cash Paid for Prepaid Insurance
Assume beginning prepaid insurance is $5,000, insurance expense is $5,210, and ending prepaid insurance is $2,425.
Solve for cash payments for taxes.
Chapter 10 31
Converting Insurance Expense into Cash Paid for Prepaid Insurance
Assume beginning prepaid insurance is $5,000, insurance expense is $5,210, and ending prepaid insurance is $2,425.
Solve for cash payments for taxes.
Chapter 10 32
Callison Company reports a beginning balance in accounts receivable of $2,500, credit sales of $55,000, and an ending balance in accounts receivable of $700. Cash collected on account amounted to
a. $57,500.
b. $55,700.
c. $56,800.
d. $52,500.
Chapter 10 33
Callison Company reports a beginning balance in accounts receivable of $2,500, credit sales of $55,000, and an ending balance in accounts receivable of $700. Cash collected on account amounted to
a. $57,500.
b. $55,700.
c. $56,800.
d. $52,500.
Chapter 10 34
Callison Company reports a beginning balance in prepaid insurance of $5,000, insurance expense on the income statement of $18,000, and an ending balance in prepaid insurance of $5,200. Cash paid for insurance during the current period amounted to
a. $17,800.
b. $18,000.
c. $18,200.
d. $18,400.
Chapter 10 35
Callison Company reports a beginning balance in prepaid insurance of $5,000, insurance expense on the income statement of $18,000, and an ending balance in prepaid insurance of $5,200. Cash paid for insurance during the current period amounted to
a. $17,800.
b. $18,000.
c. $18,200.
d. $18,400.
Chapter 10 36
Callison Company reports cost of goods sold on the income statement of $59,000. Beginning and ending accounts payable balances are $10,000 and $11,500, respectively. Beginning and ending merchandise inventory balances are $22,500 and $24,000, respectively. Compute cash paid for merchandise inventory.
a. $46,500.
b. $59,000.
c. $60,500.
d. $57,500.
Chapter 10 37
Callison Company reports cost of goods sold on the income statement of $59,000. Beginning and ending accounts payable balances are $10,000 and $11,500, respectively. Beginning and ending merchandise inventory balances are $22,500 and $24,000, respectively. Compute cash paid for merchandise inventory.
a. $46,500.
b. $59,000.
c. $60,500.
d. $57,500.
Chapter 10 38
Net Cash Flow from Operating Activities - Preferred Stock Dividends Weighted Average Number of Shares of Common
Stock Outstanding
Cash Flow Per Share
Chapter 10 39
FCF = Cash provided by operating activities – Capital investments for PP&E
Free Cash Flow
Chapter 10 40
Heedy Company reports net income of $15,000. Depreciation expense is $3,000, accounts receivable decreased $2,500, inventory increased $3,500, and accounts payable increased $2,300. Compute the cash flow from operating activities.
Chapter 10 41
Cash flows from operating activities
Net income $15,000
Adjustment to reconcile net income to net cash flow provided by operating activities:
Depreciation expense 3,000
Increase in inventory (3,500)
Decrease in accounts receivable 2,500
Increase in accounts payable 2,300
Net cash provided by operating activities $19,300
Chapter 10 42
THE END!
