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Statement of Cash Flows
Chapter Fifteen
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Learning Objective 1
Classify changes in
noncash balance
sheet accounts as
sources or uses of
cash.
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Cash
Cash
Changes in Changes in
Capital Stock Liabilities
Net Cash
Flows for a
Dividends Period Changes in
Paid to Noncash
Stockholders Assets
Net Income
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Constructing the Statement of Cash Flows Using Changes
in Noncash Balance Sheet Accounts
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Constructing the Statement of Cash Flows Using Changes
in Noncash Balance Sheet Accounts
Example: Inventory is
purchased on credit from
a supplier.
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Constructing the Statement of Cash Flows Using Changes
in Noncash Balance Sheet Accounts
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Constructing the Statement of Cash Flows Using Changes
in Noncash Balance Sheet Accounts
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Constructing the Statement of Cash Flows Using Changes
in Noncash Balance Sheet Accounts
Example: A company
pays a note payable held
by a creditor.
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Additional Information:
There was a net loss for the year of $27,000.
Depreciation charges for the year were $6,000.
During the year, Ed sold land originally costing
$32,000 for $32,000.
During the year, Ed paid dividends of $3,000 to the
stockholders.
Ed issued $50,000 of common stock to settle the
note due to Joe Doe.
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Learning Objective 2
Classify transactions
as operating,
investing, or
financing activities.
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The Full-Fledged Statement of Cash Flows:
Operating Activities
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The Full-Fledged Statement of Cash Flows:
Investing Activities
Lending money to
Acquiring or
another entity and
selling property,
subsequently
plant and
collecting on the
equipment
loan
Acquiring or
selling securities
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The Full-Fledged Statement of Cash Flows:
Financing Activities
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The Full-Fledged Statement of Cash Flows: An
Overview
Operating Activities:
Net income
Changes in current assets
Changes in noncurrent assets that affect net income (e.g., depreciation)
Changes in current liabilities (except for debts to lenders and dividends
payable)
Changes in noncurrent liabilities that affect net income
Investing Activities:
Changes in noncurrent assets that are not included in net income
Financing Activities:
Changes in the current liabilities that are debts to lenders rather than
obligations to suppliers, employees, or the government
Changes in noncurrent liabilities that are not included in net income
Changes in capital stock accounts
Dividends
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The Full-Fledged Statement of Cash Flows: An
Overview
Operating Activities
Investing Activities
Reconciliation of the
beginning cash balance
Financing Activities with the ending cash
balance
Noncash Investing
and Financing
Activities
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Operating Activities
Operating Activities
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Operating Activities
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Operating Activities
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Operating Activities
Operating Activities
Investing Activities
Financing Activities
Example:
For investing and ● Assume Macy’s
purchases $50
financing million in property
activities, items on during the year and
sells other property
the statement of for $30 million.
cash flows should ● Instead of showing
the net change of
be presented in $20 million, the
gross amounts company must
report the gross
rather than in net amounts of both
amounts. transactions.
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Learning Objective 3
Prepare a statement
of cash flows using
the indirect method to
determine the net
cash provided by
operating activities.
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A Full-Fledged Statement of Cash Flows:
An Example
Ed's Pizza Hut
Comparative Balance Sheet Account Balances
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A Full-Fledged Statement of Cash Flows:
An Example
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{
Noncurrent liabilities
Notes payable (50,000) Use
Stockholders' equity Recall that the transaction
Common stock 50,000 Source involving the Notes Payable and
Retained earnings Common Stock was noncash.
Net loss (27,000) Use
Dividends 3,000 Use
Total (net cash flow)
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{
Noncurrent liabilities
Notes payable (50,000) Use (50,000) 50,000 -
Stockholders' equity We need to make an adjustment
Common stock 50,000 Source 50,000 (50,000) for
- the noncash transaction
Retained earnings relating to Notes Payable and
Net loss (27,000) Use (27,000) - (27,000) Common Stock.
Dividends 3,000 Use (3,000) - (3,000)
Total (net cash flow) $ (19,000) $ - $ (19,000)
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Preparing the Statement of Cash Flows:
Step 7
Ed's Pizza Hut
Statement of Cash Flows
For the Period Ending 3/31/2008
Operating Activities
Net Loss $ (27,000)
Add: Decrease in A/R 17,000
Increase in A/P 11,000
Copy the data from
Increase in Depr. Charges 6,000
Less: Increase in Inventory (50,000) the worksheet into
Decrease in Salaries Payable (5,000) the Statement of
Net Cash Flow from Operations (48,000) Cash Flows section
Investing Activities
by section.
Proceeds from sale of Land 32,000
Financing Activities
Dividends paid (3,000)
Net change in cash (19,000)
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Preparing the Statement of Cash Flows:
Step 8
Ed's Pizza Hut
Statement of Cash Flows
For the Period Ending 3/31/2008
Operating Activities
Net Loss $ (27,000)
Add: Decrease in A/R 17,000
Increase in A/P 11,000
Prepare a cash
Increase in Depr. Charges 6,000
Less: Increase in Inventory (50,000) reconciliation at the
Decrease in Salaries Payable (5,000) bottom of the
Net Cash Flow from Operations (48,000) statement.
Investing Activities
Proceeds from sale of Land 32,000
Financing Activities
Dividends paid (3,000)
Net change in cash (19,000)
Cash, beginning 90,000
Cash, ending $ 71,000
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The Direct Method of
Determining the Net Cash
Provided by Operating
Activities
Appendix 15A
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Learning Objective 4
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Computing Net Cash Provided by Operating
Activities
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End of Chapter 15
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