Chapters 4 B Statement of Cash Flows Statement of Cash Flows Objectives of thi

Chapters 4 B Statement of Cash Flows Statement of Cash Flows  Objectives of thi www.phwiki.com

Chapters 4 B Statement of Cash Flows Statement of Cash Flows Objectives of thi

Tolleson, Sabrina, Office Manager;Traffic Director has reference to this Academic Journal, PHwiki organized this Journal Chapters 4 B Statement of Cash Flows Statement of Cash Flows Objectives of this Chapter I. Identify business activities which can generate or use cash in addition to differentiate between income flows (i.e., accrual basis) in addition to cash flows from operating activities. II. The Importance in addition to the usefulness of the statement of cash flows. Statement of Cash Flows Objectives of this Chapter (contd.) III. Learn how to prepare the statement of cash flows. VI. The “cash burn rate” in addition to the use of this rate in evaluating the financial viability of start-up companies. V. Learn the two alternatives (direct in addition to indirect methods) in preparing net cash flows from operating activities.

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Statement of Cash Flows I. Activities which can either generate cash or use cash as long as a business entity A. Operating activities. B. Investing activities. C. Financing activities. Statement of Cash Flows A. Operating Activities (i.e., sales revenue, expenses) All these activities are reported in the I/S (income statement). However, I/S only provides the accrual-basis net income (revenue –expense + gains – losses ) which very often is not the change in cash. There as long as e, we need to adjust from net income flows to cash flows in order to report the net cash provided by (or used in) operating activities. Statement of Cash Flows A. Operating Activities (contd.) There are two approaches to reconcile net income to net cash provided by (or used in) operating activities: 1. Indirect Method ==> Lump-Sum Adjustment 2. Direct Method ==> Individual Account Adjustment

Statement of Cash Flows 1. Indirect Method Adjust net income (the lump sum amount of all revenues in addition to expenses) as long as all differences between income flows in addition to cash flows. Statement of Cash Flows 2. Direct Method Adjust each revenue account to cash collection in addition to adjust each expense account to cash payment. Subtract total cash payments from total cash collections to derive net cash flows of the operation activities. SFAS No. 95 allows a choice between the direct in addition to indirect approach as long as the cash flow statement Statement of Cash Flows Cash flows from operating activities Cash Inflows: 1. Collections from customers including cash received from sales (or services) in addition to collections of A/R. 2. Cash receipts of interests or dividends. 3. Collections of other operating receipts (i.e., unearned revenue, rent revenue).

Statement of Cash Flows Cash Flows from Operating Activities (contd.) Cash Outflows: 1. Payments to suppliers. 2. Payments to employees. 3. Payments as long as interest expense. 4. Payments as long as income taxes. 5. Payments as long as other expenses(i.e., Prepaid expenses; rent expenses). Statement of Cash Flows Activities which can either generate cash or use cash as long as a business entity A. Operating activities. B. Investing activities. C. Financing activities. Statement of Cash Flows B. Investing Activities In addition to generate cash from or use cash in the operating activities, companies can also generate cash from (or use cash in) investing activities.

Statement of Cash Flows Cash Flows from Investing Activities Transactions involving acquiring (Investing (Cash outflows)) in addition to selling (Disinvesting (Cash inflows)) : a. Property, Plant in addition to Equipment. b. Investments (current in addition to non-current). c. Notes Receivable (current in addition to non-current). Statement of Cash Flows Notes Receivable Notes Receivable (current in addition to non-current), including: Lending money (N/R , cash outflow); Collecting of loan (N/R , cash inflow); Selling of N/R (N/R, discounting N/R, cash inflow) Statement of Cash Flows Activities which can either generate cash or use cash as long as a business entity A. Operating activities. B. Investing activities. C. Financing activities.

Statement of Cash Flows C. Financing Activities Companies can also generate cash or use cash through financing activities: Statement of Cash Flows Cash Flows from Financing Activities Obtaining resources from owners in addition to creditors (cash inflows) in addition to repaying the amount borrowed (cash outflows). Cash inflows: Cash received from issuance of common stock. Cash received from issuance of bonds. Cash received from issuance of N/P (short-term or long term). Statement of Cash Flows Cash Flows from Financing Activities (contd.) Cash Outflows: Retirement of bonds. Retirement of stock. Payments of N/P. Payments of dividends.

II. The Importance in addition to Usefulness of the Statement of Cash Flows Possible earnings managements may result in unreliable accrual earnings. Accrual accounting relies on many subjective judgments that may introduce measurement error in addition to uncertainty into reported earnings. One-time write-offs in addition to restructuring charges can reduce the quality of reported earnings. For these reasons, analysts scrutinize a firm’s cash flows—not just its accrual earnings—to evaluate per as long as mance in addition to creditworthiness. Statement of Cash Flows The Importance in addition to Usefulness of the Statement of Cash Flows (cont.) In order to show cash flows of a company, cash flows of all three activities should be reported. In doing so, investors can also obtain all the in as long as mation of operating, investing, in addition to financing activities of a company. Moreover, the following questions can also be answered: Statement of Cash Flows The Importance in addition to the Usefulness of the Statement of Cash Flows (contd.) 1. What is the relationship between net income in addition to cash provided by operations 2. Why did cash decreased when net income increased 3. What expansion (investment) activities took place in addition to how were they financed

Statement of Cash Flows The Importance in addition to the Usefulness of the Statement of Cash Flows (contd.) 4. How much is the cash provided by operating activities 5. What happened to the proceeds received from issuance of bonds or common stock All of these cannot be answered from either the income statement or the balance sheet statement. Statement of Cash Flows SFAS No. 95 To improve the comparability, SFAS No. 95, “Statement of Cash Flows,” requires companies present the statement of cash flows using a specific as long as mat. Statement of Cash Flows SFAS No. 95 (contd.) Following SFAS No. 95, the statement of cash flows should have three sections: 1. Cash flows from operating activities (using a direct or an indirect method). 2. Cash flows from investing activities. 3. Cash flows from financing activities.

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Cash flow statement: Wal-Mart example Adjustments to accrual earnings 4- Cash flow statement: Wal-Mart example 4- Statement of Cash Flows III. Procedures as long as Preparation of the Statement of Cash Flows 1. Operating Cash Flows (indirect method). 2. Investing Cash Flows. 3. Financing Cash Flows.

Statement of Cash Flows 1. Operating Cash Flows (Indirect Method; Reconciliation Method) Net Income Adjustments + Any increase in current Liabilities (except as long as N/P) + Any decrease in current assets (except as long as cash in addition to N/R) – Any decrease in current liabilities (except as long as N/P) – Any increase in current assets (except as long as cash in addition to N/R) Statement of Cash Flows 2. Investing Cash Flows Inflows: decrease in noncurrent assets (i.e., long-term investments, P.P.E.) in addition to certain current assets (i.e., trading securities, N/R). Outflows: increases in noncurrent assets in addition to certain current assets Statement of Cash Flows 3. Financing Cash Flows Inflows: increases in noncurrent liabilities (i.e., B/P, N/P), stockholders’ equity in addition to certain current liability (i.e., N/P). Outflows: decreases in noncurrent liabilities, stockholders’ equity, certain current liability in addition to dividend payment.

Statement of Cash Flows Green Company Statement of Cash Flows (contd.) Net cash inflow from operating activities $8,900 Cash flows from investing activities : : Cash flows from Financing Activities : : A reconciliation of net income in addition to cash flows using indirect method must also be presented. Statement of Cash Flows In as long as mation as provided in Example 3 (direct method) Statement of Cash Flows Cash flows from Operating Activities: Cash inflows: Collections from customers $86,0201 Cash inflows from operating activities $86,020 Cash outflows: Payments to suppliers (53,200)2 1. 88,020 – 2,000 = 86,020. 2. 52,200 – 300 + 1300 = 53,200. Statement of Cash Flows Statement of Cash Flows (contd.) Payments of other expenses (16,000)1 Payments of interest expense (500)2 Payments if Income Tax (2,820)3 Cash outflows from operating activities (72,520) Net cash inflows from operating activities $13,500 1. 15,800 + 200 = 16,000. 2. 1100 – 500 – 100 = 500. 3 3,630 – 630 -180 = 2,820.

Tolleson, Sabrina Office Manager;Traffic Director

Tolleson, Sabrina is from United States and they belong to WKXX-FM and they are from  Rainbow City, United States got related to this Particular Journal. and Tolleson, Sabrina deal with the subjects like Traffic Reporting

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