Intermediate AccountingCash Flow Reporting

1、Intermediate Accounting 19 Cash Flow ReportingCash Flow ReportingChapter 19Statement of Cash FlowsPreparation of the StatementSpecial Problems in Statement PreparationUse of a WorksheetUsefulnessClassification of cash flowsFormat of statementSteps in preparationExamplesSources of informationIndirect

2、 vs. direct methodAdjustments similar to depreciationAccounts receivable (net)Other working capital changesNet lossesGainsStock optionsPostretirement benefit costsExtraordinary itemsSignificant noncash transactionsPreparation of worksheetAnalysis of transactionsPreparation of final statementLO 1 Des

3、cribe the purpose of the statement of cash flows.Primary purpose: To provide information about a companys cash receipts and cash payments during a period.Secondary objective:To provide cash-basis information about the companys operating, investing, and financing activities.Section 1 - Preparation of

4、 the Statement of Cash FlowsLO 1 Describe the purpose of the statement of cash flows.Usefulness of the Statement of Cash FlowsProvides information to help assess:Entitys ability to generate future cash flows.Entitys ability to pay dividends and obligations.Reasons for difference between net income a

5、nd net cash flow from operating activities.Cash and noncash investing and financing transactions.LO 2 Identify the major classifications of cash flows.Classification of Cash FlowsIncome Statement ItemsOperating ActivitiesGenerally Long-Term Asset ItemsInvesting ActivitiesGenerally Long-Term Liabilit

6、y and Equity ItemsFinancing ActivitiesThe term “Cash” = Cash and cash equivalents.3 The basis recommended by the FASB for the statement of cash flows is actually “cash and cash equivalents.” Cash equivalents are short-term, highly liquid investments that are both: (a) readily convertible to known am

7、ounts of cash, and (b) so near their maturity that they present insignificant risk of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under this definition. Examples of cash equivalents are Treasury bills, commercial paper, and money ma

8、rket funds purchased with cash that is in excess of immediate needs.Cash and Cash Equivalent Text Footnote 3LO 2 Identify the major classifications of cash flows.Classification of Cash FlowsClassification of Typical Inflows and Outflows LO 2 Identify the major classifications of cash flows.Classific

9、ation of Cash FlowsIllustration 23-1Income Statement ItemsClassification of Typical Inflows and Outflows LO 2 Identify the major classifications of cash flows.Classification of Cash FlowsGenerally Long-Term Asset ItemsIllustration 23-1Classification of Typical Inflows and Outflows LO 2 Identify the

10、major classifications of cash flows.Classification of Cash FlowsIllustration 23-1Generally Long-Term Liability and Equity ItemsLO 2 Identify the major classifications of cash flows.Format of the Statement of Cash FlowsOrder of Presentation:Operating activities. Investing activities.Financing activit

11、ies.Report inflows and outflows from investing and financing activities separately.Direct MethodIndirect MethodThree Sources of Information:Comparative balance sheetsCurrent income statementSelected transaction dataLO 2 Identify the major classifications of cash flows.Steps in PreparationThree Major

12、 Steps:Step 1. Determine change in cash.Step 2. Determine net cash flow from operating activities.Step 3. Determine net cash flows from investing and financing activities.A company must determine revenues and expenses on a cash basis. Eliminate the effects of income statement transactions that do no

13、t result in an increase or decrease in cash.Convert net income to net cash flow from operating activities through either a direct method or an indirect method.LO 3 Differentiate between net income and net cash flows from operating activities.Step 2: Determine Net Cash Flow from Operating ActivitiesI

14、ndirect Method Adjusts net income for items not affecting cash.LO 4 Contrast the direct and indirect methods of calculating net cash flow from operating activities.Example Operating SectionIllustration 23-8Common adjustments to Net Income (Loss):Depreciation and amortization expense.Gain or loss on

15、disposition of long-term assets.Change in current assets and current liabilities.Krauss Companys financial statements for the year ended December 31, 2007, contained the following condensed information.E23-6 (Operating ActivitiesIndirect Method)LO 4 Contrast the direct and indirect methods of calcul

16、ating net cash flow from operating activities.Prepare the operating activities section of the statement of cash flows using the indirect method (Step 2).E23-6 (Operating ActivitiesIndirect Method)LO 4 Contrast the direct and indirect methods of calculating net cash flow from operating activities.Dir

17、ect Method Deducts operating cash disbursements from operating cash receipts.Example Operating SectionLO 4 Contrast the direct and indirect methods of calculating net cash flow from operating activities.“Net cash provided by operating activities” is the equivalent of cash basis net income.Illustrati

18、on 23-6Krauss Companys financial statements for the year ended December 31, 2007, contained the following condensed information.E23-5 (Operating ActivitiesDirect Method)LO 4 Contrast the direct and indirect methods of calculating net cash flow from operating activities.Assume accounts payable relate

19、s to operating expenses.Prepare the operating activities section of the statement of cash flows using the Direct method (Step 2).E23-5 (Operating ActivitiesDirect Method)LO 4 Contrast the direct and indirect methods of calculating net cash flow from operating activities.Illustration 23-22Prepare the

20、 operating activities section of the statement of cash flows using the Direct method (Step 2).E23-5 (Operating ActivitiesDirect Method)LO 4 Contrast the direct and indirect methods of calculating net cash flow from operating activities.Prepare the operating activities section of the statement of cas

21、h flows using the Direct method (Step 2).E23-5 (Operating ActivitiesDirect Method)LO 4 Contrast the direct and indirect methods of calculating net cash flow from operating activities.Prepare the operating activities section of the statement of cash flows using the Direct method (Step 2).E23-5 (Opera

22、ting ActivitiesDirect Method)LO 4 Contrast the direct and indirect methods of calculating net cash flow from operating activities.Prepare the operating activities section of the statement of cash flows using the Direct method (Step 2).E23-5 (Operating ActivitiesDirect Method)LO 4 Contrast the direct

23、 and indirect methods of calculating net cash flow from operating activities.E23-2 (a) Plant assets that had cost $20,000 6 years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold for $5,300.LO 5 Determine net cash flows from investing a

24、nd financing activities.Step 3: Determine Net Cash Flow from Investing and Financing ActivitiesE23-2 (a)OIFLO 5 Determine net cash flows from investing and financing activities.E23-2 (b)E23-2 (b) During the year, 10,000 shares of common stock with a stated value of $10 a share were issued for $43 a

25、share.LO 5 Determine net cash flows from investing and financing activities.E23-2 (b)OIFLO 5 Determine net cash flows from investing and financing activities.E23-2 (d)E23-2 (d) The company sustained a net loss for the year of $50,000. Depreciation amounted to $22,000, and a gain of $9,000 was realiz

26、ed on the sale of land for $39,000 cash.LO 5 Determine net cash flows from investing and financing activities.E23-2 (d)OIFLO 5 Determine net cash flows from investing and financing activities.E23-2 (h)E23-2 (h) During the year, treasury stock costing $47,000 was purchased.LO 5 Determine net cash flo

27、ws from investing and financing activities.E23-2 (h)LO 5 Determine net cash flows from investing and financing activities.OIFStatement of Cash Flows (a,b,d,h)LO 6 Prepare a statement of cash flows.OIFLO 7 Identify sources of information for a statement of cash flows.Sources of Information for the St

28、atement of Cash FlowsComparative balance sheets.An analysis of the Retained Earnings.Writedowns, amortization charges, and similar “book” entries, such as depreciation, because they have no effect on cash.LO 7 Identify sources of information for a statement of cash flows.Indirect MethodNet IncomeNet

29、 Cash Flow from Operating ActivitiesIndirect Versus Direct MethodLO 7 Identify sources of information for a statement of cash flows.Net Cash Flow from Operating ActivitiesIndirect Versus Direct MethodUnder the Direct Method, companies adjust each item in the income statement from the accrual basis t

30、o the cash basis. Example line items found in the operating section:Cash receipts from customers (see E23-5)Cash payments to suppliers (see E23-4 to follow)Cash payments for operating expenses (see E23-5)Cash payments for income taxes (see E23-5)BE 23-4 Azure Corporations financial statements for 20

31、08, contained the following condensed information (some facts added).Calculate “Cash Payments to Suppliers.”BE23-4 (Direct Method)LO 7 Identify sources of information for a statement of cash flows.BE23-4 (Direct Method)LO 7 Identify sources of information for a statement of cash flows.Illustration 2

32、3-23BE23-4 (Direct Method)LO 7 Identify sources of information for a statement of cash flows.Direct Versus Indirect ControversyLO 7 Identify sources of information for a statement of cash flows.In Favor of the Direct MethodShows operating cash receipts and payments.Information about cash receipts an

33、d payments is more revealing of a companys ability to generate sufficient cash from operating activities to pay its debts, to reinvest in its operations, and to make distributions to its owners.Direct Versus Indirect ControversyLO 7 Identify sources of information for a statement of cash flows.In Fa

34、vor of the Indirect MethodFocuses on the differences between net income and net cash flow from operating activities.Provides link between the statement of cash flows and the income statement and balance sheet.Special Rules Applying to Indirect MethodsDisclose Interest paid.Disclose Income taxes paid

35、.Special Problems in Statement PreparationLO 8 Discuss special problems in preparing a statement of cash flows.1. Adjustments similar to depreciationAmortization of limited-life intangible assets.Amortization of deferred costs.Amortization of bond discount or premium.Changes in deferred income taxes

36、.Change related to an investment when recording income or loss under the equity method.Special Problems in Statement PreparationLO 8 Discuss special problems in preparing a statement of cash flows.2. Accounts receivable, net3. Other working capital changes4. Net losses5. Gains6. Stock options7. Post

37、retirement benefits8. Extraordinary items9. Significant noncash transactionsUse of a WorksheetLO 9 Explain the use of a worksheet in preparing a statement of cash flows.A worksheet involves the following steps.Step 1. Enter the balance sheet accounts and their beginning and ending balances in the balance sheet accounts section.Step 2. Enter the data that explain the changes in the balance sheet accounts and their effects on the statement