C Flow

CHAPTER 14
STATEMENT OF CASH FLOWS
Managerial Accounting, Fourth Edition

Chapter 13-1
Wiley & Richard McDermott
Study Objectives
1. Indicate the usefulness of the statement of cash flows.
2. Distinguish among operating, investing, and financing activities.

3. Prepare a statement of cash flows using the indirect method. 4. Analyze the statement of cash flows.
Chapter 13-2
Statement of Cash Flows
The Statement of Cash Flows: Usefulness and Format

Usefulness
Classifications Significant noncash activities Format
Preparing the Statement of Cash Flows Indirect Method

Step 1: Operating activities
Step 2: Investing and financing activities Step 3: Net change in cash
Using Cash Flows to Evaluate a Company

Free cash flow
Preparation
Indirect and direct methods
Chapter 13-3
Usefulness of the Statement of Cash Flows

Provides information to help assess:
1. Entitys ability to generate future cash flows. 2. Entitys ability to pay dividends and obligations. 3. Reasons for difference between net income and net
cash provided (used) by operating activities.

the period.
4. Cash investing and financing transactions during
Chapter 13-4
LO 1 Indicate the usefulness of the statement of cash flows.
Classification of Cash Flows

Operating
Activities
Income
Investing
Activities
Generally Investments and Long-Term Assets
Financing
Activities
Generally Long-Term Liability and Stockholders Equity
Statement
Items
Chapter 13-5
LO 2 Distinguish among operating, investing, and financing activities.

Classification of Typical Inflows and Outflows
Illustration 13-1
Operating activities - Income statement items

Cash inflows: From sale of goods or services. From interest received and dividends received. Cash outflows: To suppliers for inventory. Note: Current asset To employees for services. To government for taxes. To lenders for interest. Note: Not financing To others for expenses.
Chapter 13-6

Illustration 13-1
Investing activities - Changes in investments and longterm assets Cash inflows: From sale of property, plant, and equipment. From sale of in debt or equity securities. From collection of principal on loans to other entities. Cash outflows: To purchase property, plant, and equipment. To purchase investments in debt or equity securities. To make loans to other entities.
Chapter 13-7

Illustration 13-1
Financing activities - Changes in long-term liabilities

and stockholders equity Cash inflows: From sale of common stock. From issuance of long-term debt (bonds and notes). Cash outflows: To stockholders as dividends. To redeem long-term debt or reacquire capital stock (treasury stock).
Chapter 13-8

Significant Noncash Activities
1. Issuance of common stock to purchase assets.
2. Conversion of bonds into common stock.

3. Issuance of debt to purchase assets. 4. Exchanges of plant assets.
Companies report these activities in either a separate schedule at the bottom of the statement of cash flows or in a separate note or supplementary schedule to the financial statements.
Chapter 13-9
Format of the Statement of Cash Flows

Order of Presentation:
1. 2. 3.
Operating activities. Investing activities. Financing activities.
Direct Method
Indirect Method
We wont learn direct method in this class
The cash flows from operating activities section always appears first, followed by the investing and financing sections.
Chapter 13-10
Format of the Statement of Cash Flows

Illustration 13-2
Chapter 13-11
Preparing the Statement of Cash Flows

Three Sources of Information:
1. Comparative balance sheets 2. Current income statement 3. Additional information
Chapter 13-12
Preparing the Statement of Cash Flows

Indirect and Direct Methods
Companies favor the indirect method for two reasons: 1. It is easier and less costly to prepare, and 2. It focuses on the differences between net income and net cash flow from operating activities.
Chapter 13-13
LO 3 Prepare a statement of cash flows using the indirect method.
Note from Dr. McDermott

I have never seen the method for preparing cash flow statements used by the author. I have looked at probably a dozen textbooks. It is hard enough to teach cash flow statements with traditional methods. For a beginner, the authors method is more difficult. I will teach the traditional method.
Chapter 13-14
Step 1: Set up a worksheet like this, memorize the column headings!

Statement of Cash Flow Worksheet (1) 2007 Assets Except Cash & Cash Equivalents Accounts Receivable Inventories 2008 (2) Source Change or Use (3) Cash Flow Effect Adjustmts (4) (3+4) (5) Adjusted Effect (6) Classification
$ 76,000.00 $ 189,000.00
$ 85,000.00 $ 170,000.00
Land
Equipment
$ 100,000.00
$ 200,000.00
$ 75,000.00
$ 260,000.00
Contra Assets, Liabilities and Stockholder Equity Accumulated depreciation Accounts payable Bonds payable Common stock Retained earnings Net Income Dividends $ 32,000.00 $ 47,000.00 $ 200,000.00 $ 174,000.00 $ 66,000.00 $ 39,000.00 $ 150,000.00 $ 216,000.00
There are several important things to notice: 1. We did not list a row for cash or cash equivalents. 2. We listed accounts that are increased with a debit balance in the top section (Assets Except Cash and Cash Equivalents) and accounts that are increased with credits on the bottom (Contra Assets, Liabilities and Stockholder Equity. 3. Since Accumulated Depreciation is increased with a credit, it goes in the second section.
Additional Entries
We will get to this section later.
Chapter 13-15
Step 1: Set up a worksheet like this, memorize the column headings!

Statement of Cash Flow Worksheet (1) 2007 Assets Except Cash & Cash Equivalents Accounts Receivable Inventories 2008 (2) Source Change or Use (3) Cash Flow Effect Adjustmts (4) (3+4) (5) Adjusted Effect (6) Classification
$ 76,000.00 $ 189,000.00
$ 85,000.00 $ 170,000.00
Land
Equipment
$ 100,000.00
$ 200,000.00
$ 75,000.00
$ 260,000.00
Contra Assets, Liabilities and Stockholder Equity Accumulated depreciation Accounts payable Bonds payable Common stock Retained earnings Net Income Dividends $ 32,000.00 $ 47,000.00 $ 200,000.00 $ 174,000.00 $ 66,000.00 $ 39,000.00 $ 150,000.00 $ 216,000.00
One more important thing to mention, we will break retained earnings into net income and dividends on this worksheet.
Additional Entries
Chapter 13-16
Step 2: Subtract the figures in the 2007 row from the figures in the 2008 row to get the change
Statement of Cash Flow Worksheet (1) 2007 Assets Except Cash & Cash Equivalents Accounts Receivable Inventories Land Equipment 2008 (2) Source Change or Use (3) Cash Flow Effect Adjustmts (4) (3+4) (5) Adjusted Effect (6) Classification
$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00
$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00
9,000.00
$ (19,000.00) $ (25,000.00) $ 60,000.00
Contra Assets, Liabilities and Stockholder Equity Accumulated depreciation Accounts payable Bonds payable Common stock Retained earnings Net Income Dividends $ 103,000.00 $ (45,000.00) $ 32,000.00 $ 47,000.00 $ 200,000.00 $ 174,000.00 $ 66,000.00 $ 39,000.00 $ 150,000.00 $ 216,000.00 $ 34,000.00 $ (8,000.00)
$ (50,000.00) $ 42,000.00
Additional Entries
This a good time to put in the net income and dividends paid during the year in lieu of retained earnings.
Chapter 13-17
Step 3: Now determine if each transaction is a source or use of cash

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00
$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00
9,000.00
Use Source Source Use
$ (19,000.00) $ (25,000.00) $ 60,000.00
Contra Assets, Liabilities and Stockholder Equity Accumulated depreciation Accounts payable Bonds payable Common stock Retained earnings Net Income Dividends $ 103,000.00 $ (45,000.00) Source Use $ 32,000.00 $ 47,000.00 $ 200,000.00 $ 174,000.00 $ 66,000.00 $ 39,000.00 $ 150,000.00 $ 216,000.00 $ 34,000.00 $ (8,000.00) Source Use
Rule: positive numbers using this format are uses of cash in the Cash Equivalents Section, negative numbers are sources of cash.
$ (50,000.00) $ 42,000.00
Use Source
The opposite is true in the Contra Asset section.
Additional Entries
Chapter 13-18
Step 4: In column 3, make all sources of cash positive and all uses negative
$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00
$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00
9,000.00
$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)
$ (19,000.00) $ (25,000.00) $ 60,000.00
Contra Assets, Liabilities and Stockholder Equity Accumulated depreciation Accounts payable Bonds payable Common stock Retained earnings Net Income Dividends $ 103,000.00 $ (45,000.00) Source Use $ 103,000.00 $ (45,000.00) $ 32,000.00 $ 47,000.00 $ 200,000.00 $ 174,000.00 $ 66,000.00 $ 39,000.00 $ 150,000.00 $ 216,000.00 $ 34,000.00 $ (8,000.00) Source Use $ 34,000.00 $ (8,000.00)
Shortcut, change the sign of the numbers in column 1 in the Assets . . . section and leave them as is in the Contra Assets . . . section
$ (50,000.00) $ 42,000.00
Use Source
$ (50,000.00) $ 42,000.00
Additional Entries
Chapter 13-19
Step 5: Make Adjustments

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00
$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00
9,000.00
$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)
$ (19,000.00) $ (25,000.00) $ 60,000.00
$ (50,000.00) $ 42,000.00
Use Source
$ (50,000.00) $ 42,000.00
Now we are going to focus on the adjustments column. The easiest was to make these and get the sign (positive or negative) straight is to create an Additional Entries section at the bottom of the form.
Additional Entries
Chapter 13-20

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00
$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00
9,000.00
$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)
$ (19,000.00) $ (25,000.00) $ 60,000.00
$ (50,000.00) $ 42,000.00
Use Source
$ (50,000.00) $ 42,000.00
In the adjustments column, debits to the accounts being adjusted from 2007 to 2008 will be shown as positive numbers and credits will be shown as negative numbers. What does this mean? Lets wait until the next slide to find out!
Additional Entries
Chapter 13-21

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00
$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00
9,000.00
$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)
$ (19,000.00) $ (25,000.00) $ 60,000.00
$ (50,000.00) $ 42,000.00
Use Source
$ (50,000.00) $ 42,000.00
Additional Entries
Where do we get the information for the adjustments? From the Additional Information given in the problem.
Chapter 13-22

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00
$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00
9,000.00
$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)
$ (19,000.00) $ (25,000.00) $ 60,000.00
$ (50,000.00) $ 42,000.00
Use Source
$ (50,000.00) $ 42,000.00
Additional Entries
The easiest way to enter this data is to pretend you are making a journal entry.
Chapter 13-23

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00
$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00
9,000.00
$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)
$ (19,000.00) $ (25,000.00) $ 60,000.00
$ (50,000.00) $ 42,000.00
Use Source
$ (50,000.00) $ 42,000.00
Additional Entries
Chapter 13-24
If the account is shown above, debit or credit that account the same as you would in a journal entry for that transaction.

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00
$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00
9,000.00
$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)
$ (19,000.00) $ (25,000.00) $ 60,000.00
$ (50,000.00) $ 42,000.00
Use Source
$ (50,000.00) $ 42,000.00
Additional Entries
If it is not shown, it probably relates to cash and is listed here.
Chapter 13-25

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00
$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00
9,000.00
$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)
$ (19,000.00) $ (25,000.00) $ 60,000.00
Remember, we did not list a row for cash using this methodology.
$ (50,000.00) $ 42,000.00
Use Source
$ (50,000.00) $ 42,000.00
Additional Entries
Chapter 13-26

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00
$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00
9,000.00
$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)
$ (19,000.00) $ (25,000.00) $ 60,000.00
The first adjustment given is that bonds amounting to $50,000 were redeemed for cash of $50,000. The journal entry would be to credit cash (that is the first entry under the Additional Entries section).
$ (50,000.00) $ 42,000.00
Use Source
$ (50,000.00) $ 42,000.00
Additional Entries Cash used to redeem bonds ($50,000)
Chapter 13-27

Statement of Cash Flow Worksheet (1) 2007 Assets Except Cash & Cash Equivalents Accounts Receivable Inventories Land Equipment 2008 (2) Source Change or Use (3) Cash Flow Effect (4) (3+4) (5) (6)
Where does Adjusted Classithe debitfication go? Adjustmts Effect To bonds payable. Remember when we redeem a bond we debit the account.
$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00
$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00
9,000.00
$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)
$ (19,000.00) $ (25,000.00) $ 60,000.00
$ (50,000.00) $ 42,000.00
Use Source
$ (50,000.00) $ 42,000.00
$50,000
Additional Entries Cash used to redeem bonds ($50,000)
Chapter 13-28

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00
$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00
9,000.00
$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)
$ (19,000.00) $ (25,000.00) $ 60,000.00
Contra Assets, Liabilities and Stockholder Equity Accumulated depreciation Accounts payable Bonds payable Common stock Retained earnings Net Income Dividends $ 103,000.00 $ (45,000.00) Source Use $ 32,000.00 $ 47,000.00 $ 200,000.00 $ 174,000.00 $ 66,000.00 $ 39,000.00 $ 150,000.00 $ 216,000.00 $ 34,000.00 $ (8,000.00) Source Use $ 34,000.00 $ (8,000.00)
$ (50,000.00) $ 42,000.00
Use Source
$ (50,000.00) $ 42,000.00
$50,000
Debit & Credit

($50,000)
Additional Entries Cash used to redeem bonds
Chapter 13-29

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00
$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00
9,000.00
$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)
$ (19,000.00) $ (25,000.00) $ 60,000.00
Contra Assets, Liabilities and Stockholder Equity Accumulated depreciation Accounts payable Bonds payable Common stock Retained earnings Net Income Dividends $ 103,000.00 $ (45,000.00) Source Use $ 32,000.00 $ 47,000.00 $ 200,000.00 $ 174,000.00 $ 66,000.00 $ 39,000.00 $ 150,000.00 $ 216,000.00 $ 34,000.00 $ (8,000.00) Source Use $ 34,000.00 $ (8,000.00)
$ (50,000.00) $ 42,000.00
Use Source
$ (50,000.00) $ 42,000.00
$50,000 ($42,000)
The next adjustment is common stock being sold for $42,000 in cash.
($50,000) $42,000
Additional Entries Cash used to redeem bonds Common stock issued
Chapter 13-30
Step 6: Add columns 3 and 4 to get the total adjusted affect

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00
$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00
9,000.00
$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)
$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)
$ (19,000.00) $ (25,000.00) $ 60,000.00
Contra Assets, Liabilities and Stockholder Equity Accumulated depreciation Accounts payable Bonds payable Common stock Retained earnings Net Income Dividends $ 103,000.00 $ (45,000.00) Source Use $ 32,000.00 $ 47,000.00 $ 200,000.00 $ 174,000.00 $ 66,000.00 $ 39,000.00 $ 150,000.00 $ 216,000.00 $ 34,000.00 $ (8,000.00) Source Use $ 34,000.00 $ (8,000.00) $ 34,000.00 $ (8,000.00)
$ (50,000.00) $ 42,000.00
Use Source
$ (50,000.00) $ 50,000.00 $ 42,000.00 $ (42,000.00)
$ $
Additional Entries Cash used to redeem bonds Common stock issued $ (50,000.00) $ 42,000.00 $ (50,000.00) $ 42,000.00
Chapter 13-31
Step 7: Classify each transaction on where it will appear on the statement

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00
$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00
9,000.00
$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)
$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)
Operating Operating Investing Investing
$ (19,000.00) $ (25,000.00) $ 60,000.00
Contra Assets, Liabilities and Stockholder Equity Accumulated depreciation Accounts payable Bonds payable Common stock Retained earnings Net Income Dividends $ 103,000.00 $ (45,000.00) Source Use Operating Financing $ 32,000.00 $ 47,000.00 $ 200,000.00 $ 174,000.00 $ 66,000.00 $ 39,000.00 $ 150,000.00 $ 216,000.00 $ 34,000.00 $ (8,000.00) Source Use $ 34,000.00 $ (8,000.00) $ 34,000.00 $ (8,000.00) Operating Operating
$ (50,000.00) $ 42,000.00
Use Source
$ (50,000.00) $ 50,000.00 $ 42,000.00 $ (42,000.00)
$ $
Financing Financing
Additional Entries Cash used to redeem bonds Common stock issued $ (50,000.00) $ 42,000.00 $ (50,000.00) $ 42,000.00 Financing Financing
Chapter 13-32
Step 8: Take the information from the worksheet and begin the Cash Flow Statement
Chapter 13-33
Statement of Cash Flows Cash flow from Operating Activities Net Income
$ 103,000.00
Remember there are three sections to the Statement of Cash Flows. We start with Cash flow from Operating Activities. The first entry should be net income.
Chapter 13-34
Statement of Cash Flows Cash flow from Operating Activities Net Income Adjustments to Net Income Depreciation
$ 103,000.00
$ 34,000.00
We want to adjust income to cash flow. The first adjustment most authors like to see is to add back deprecation. Remember depreciation is a non-cash expense. Add it to income to get cash flow. Lets follow this format in this class. Now we go to our worksheet, and start from the top, selecting each item listed as an Operating item.
Chapter 13-35
Statement of Cash Flows Cash flow from Operating Activities Net Income Adjustments to Net Income Depreciation Increase in AR
$ 103,000.00
$ 34,000.00 $ (9,000.00)
The first item on the worksheet is Accounts Receivables. We have already: Classified it as operating Shown that it was an increase in amount. Figured out that an increase in this accounts is a use rather than source of cash.
See! All of our thinking has already been done. We concentrate on one thing at a time, less chance to make stupid mistakes on an exam.
Chapter 13-36
Statement of Cash Flows Cash flow from Operating Activities Net Income Adjustments to Net Income Depreciation Increase in AR Decrease in Inventory Decrease in AP Total change Net Cash Provided Op Activities
$ 103,000.00
$ $ $ $
34,000.00 (9,000.00) 19,000.00 (8,000.00)

$ 36,000.00 $ 139,000.00
We will continue down the worksheet, doing essentially the same thing. Selecting Operating items and looking to see if they are uses or sources of cash. We will then sum all changes ($36,000) and add that to income to get Net Cash Provided by Operating Activities.
Chapter 13-37
Statement of Cash Flows Cash flow from Operating Activities Net Income Adjustments to Net Income Depreciation Increase in AR Decrease in Inventory Decrease in AP Total change Net Cash Provided Op Activities Cash Flow Investing Sale of land Purchase of Equipment Cash Used Investing Cash Flow Financing Purchase of Bonds Issuance of Stock Payment of Dividends Cash Used Financing
$ 103,000.00
$ $ $ $
34,000.00 (9,000.00) 19,000.00 (8,000.00)

$ 36,000.00 $ 139,000.00
$ 25,000.00 $ (60,000.00) $ (35,000.00)
$ (50,000.00) $ 42,000.00 $ (45,000.00) $ (53,000.00)
Lets use the worksheet to identify items for Investing and Financing. Total cash source or use from each section.
Chapter 13-38
Statement of Cash Flows Cash flow from Operating Activities Net Income Adjustments to Net Income Depreciation Increase in AR Decrease in Inventory Decrease in AP Total change Net Cash Provided Op Activities Cash Flow Investing Sale of land Purchase of Equipment Cash Used Investing Cash Flow Financing The last of Bonds do Purchase thing we Issuance in Cash Increaseof Stock Payment of Dividends Cash Used Financing Net Increase in Cash
$ 103,000.00
$ $ $ $
34,000.00 (9,000.00) 19,000.00 (8,000.00) $ 36,000.00 $ 139,000.00
$ 25,000.00 $ (60,000.00) $ (35,000.00)
is total the three sections to get Net $ (50,000.00)

$ 42,000.00 $ (45,000.00) $ (53,000.00) $ 51,000.00
Chapter 13-39
$ 103,000.00
$ $ $ $
34,000.00 (9,000.00) 19,000.00 (8,000.00)

$ 36,000.00 $ 139,000.00
$ 25,000.00 $ (60,000.00) $ (35,000.00)
To the increase in cash add the beginning cash(50,000.00) $ balance taken for the balance sheet (2007). $ 42,000.00
$ (45,000.00) $ (53,000.00) $ 51,000.00 $ 22,000.00
Net Increase in Cash Cash at beginning of period

Chapter 13-40
$ 103,000.00
$ $ $ $
34,000.00 (9,000.00) 19,000.00 (8,000.00)

$ 36,000.00 $ 139,000.00
$ 25,000.00 $ (60,000.00) $ (35,000.00)
Add Increase in Cash to Cash at Beginning of (50,000.00) $ $ Period and it should given you Cash at End of 42,000.00 Period taken from the 2008 balance sheet. $ (45,000.00) $ (53,000.00)
$ 51,000.00 $ 22,000.00 $ 73,000.00
Net Increase in Cash Cash at beginning of period Cash at end of period

Chapter 13-41
Simple Right?
So how do I get an A on the exam? Memorize the columns in the worksheet. Enter numbers one column at a time.
Concentrate on one concept at a time.
Use the worksheet as the format for the Statement of Cash Flows which you will also have memorized. Recheck your work!
Chapter 13-42
E13-9
We will work in class on the board. Download Excel file from hyperlink on Acc 2020 Web Page (http://faculty.weber.edu/rmcdermott)
Chapter 13-43

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CHAPTER 14

STATEMENT OF CASH FLOWS

Managerial Accounting, Fourth Edition

Wiley & Richard McDermott

2. Distinguish among operating, investing, and financing activities.

Statement of Cash Flows

The Statement of Cash Flows: Usefulness and Format

Preparing the Statement of Cash Flows Indirect Method

Using Cash Flows to Evaluate a Company

Usefulness of the Statement of Cash Flows

cash provided (used) by operating activities.

4. Cash investing and financing transactions during

LO 1 Indicate the usefulness of the statement of cash flows.

Classification of Cash Flows

LO 2 Distinguish among operating, investing, and financing activities.

Classification of Cash Flows

Operating activities - Income statement items

LO 2 Distinguish among operating, investing, and financing activities.

Classification of Cash Flows

LO 2 Distinguish among operating, investing, and financing activities.

Classification of Cash Flows

Financing activities - Changes in long-term liabilities

LO 2 Distinguish among operating, investing, and financing activities.

Classification of Cash Flows

2. Conversion of bonds into common stock.

LO 2 Distinguish among operating, investing, and financing activities.

Format of the Statement of Cash Flows

Operating activities. Investing activities. Financing activities.

We wont learn direct method in this class

LO 2 Distinguish among operating, investing, and financing activities.

Format of the Statement of Cash Flows

LO 2 Distinguish among operating, investing, and financing activities.

Preparing the Statement of Cash Flows

Preparing the Statement of Cash Flows

LO 3 Prepare a statement of cash flows using the indirect method.

Note from Dr. McDermott

Step 1: Set up a worksheet like this, memorize the column headings!

We will get to this section later.

Step 1: Set up a worksheet like this, memorize the column headings!

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00

$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00

$ (19,000.00) $ (25,000.00) $ 60,000.00

Step 3: Now determine if each transaction is a source or use of cash

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00

$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00

Use Source Source Use

$ (19,000.00) $ (25,000.00) $ 60,000.00

The opposite is true in the Contra Asset section.

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00

$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00

Use Source Source Use

$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)

$ (19,000.00) $ (25,000.00) $ 60,000.00

Step 5: Make Adjustments

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00

$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00

Use Source Source Use

$ (9,000.00) $ 19,000.00 $ 25,000.00 $ (60,000.00)

$ (19,000.00) $ (25,000.00) $ 60,000.00

Step 5: Make Adjustments

$ 76,000.00 $ 189,000.00 $ 100,000.00 $ 200,000.00

$ 85,000.00 $ 170,000.00 $ 75,000.00 $ 260,000.00

Use Source Source Use