statement of cashflows slides

7/24/2019 statement of cashflows slides

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Chapter

13

Statement ofStatement ofCash FlowsCash Flows

Financial Accounting, IFRS Edition

Weygandt Kimmel Kieso


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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 indirectmethod.

. !nal"#e the statement of cash flows.

Study ObjectivesStudy Objectives

Study ObjectivesStudy Objectives


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$sefulness$sefulness

ClassificationsClassifications

Significant non%cashSignificant non%cash

activitiesactivities

FormatFormat

PreparationPreparation

Indirect and directIndirect and directmethodsmethods

Step 1& 'peratingStep 1& 'perating

activitiesactivities

Step 2& Investing andStep 2& Investing andfinancing activitiesfinancing activities

Step 3& (et changeStep 3& (et change

in cashin cash

Free cash flowFree cash flow

The Statement ofThe Statement of

Cash Flows:Cash Flows:

Usefulness andUsefulness and

FormatFormat

The Statement ofThe Statement of

Cash Flows:Cash Flows:

Usefulness andUsefulness and

FormatFormat

Preparing thePreparing the

Statement of CashStatement of Cash

Flowsndire!tFlowsndire!t

"ethod"ethod

Preparing thePreparing the


Flowsndire!tFlowsndire!t

"ethod"ethod

Using Cash Flows toUsing Cash Flows to

#$aluate a Compan%#$aluate a Compan%

Using Cash Flows toUsing Cash Flows to

#$aluate a Compan%#$aluate a Compan%

Statement of Cash FlowsStatement of Cash Flows

Statement of Cash FlowsStatement of Cash Flows


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Slide13-&

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

Provides information to help assess&

1. )ntit"*s a+ilit" to generate future cash flows.

2. )ntit"*s a+ilit" to pa" dividends and o+ligations.

3. easons for difference +etween net income and net cash

provided -used +" operating activities.

. Cash investing and financing transactions during the

period.

Usefulness and FormatUsefulness and Format


Usefulness of the Statement of Cash Flows


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Slide13-'

SO 2 istin!uish amon! operatin!" investin!" and financin! activities.

Income

Statement

Items

(perating

!ctivities

/enerall"

(on%Current

!sset Items

n$esting

!ctivities

/enerall" (on%

Current

0ia+ilit" and

)uit" Items

Finan!ing

!ctivities

Classifi!ation of Cash Flows




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T%pes of Cash nflows and (utflows

Classification of Cash FlowsClassification of Cash FlowsClassification of Cash FlowsClassification of Cash Flows


llustration 13-1


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llustration 13-1


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IFS reuires that the following amounts +e disclosed&

Cash paid for taes.

Cash received and paid from interest and dividends.

llustration 13-2

,aimlers statement of

!ash flows note


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Slide13-1.

Signifi!ant /on-Cash 0!ti$ities

1. Direct issuance of ordinar" shares to purchase assets.

2. Conversion of +onds into ordinar" shares.

3. Direct issuance of de+t to purchase assets.

. )changes of plant assets.

Companies report these activities in either a separate noteor

supplementar" schedule to the financial statements.


Usefulness and FormatUsefulness and FormatUsefulness and FormatUsefulness and Format


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(rder of Presentation:

1. 'perating activities.

2. Investing activities.

3. Financing activities.

Direct ethod

Indirect ethod


Format of the Statement of Cash Flows


4he cash flows from operating activities section alwa"s

appears first, followed +" the investing and financing sections.


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Format of the Statement of Cash FlowsFormat of the Statement of Cash FlowsFormat of the Statement of Cash FlowsFormat of the Statement of Cash Flows


llustration 13-3


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During its first wee5, 6u (a Compan" had thesetransactions.

Format of the Statement of Cash FlowsFormat of the Statement of Cash FlowsFormat of the Statement of Cash FlowsFormat of the Statement of Cash Flows

1. Issued 177,777 689:7 par value ordinar" shares

for 689;,777,777 cash.

2.


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Three Sour!esof Information&

1. Comparative statement of financial position

2. Current income statement

3. !dditional information


Preparing the Statement of Cash Flows



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ndire!t and ,ire!t "ethods

Companies favor the indire!t methodfor two reasons&

1. )asier and less costl" to prepare, and

2. Focuses on the differences +etween net income and net

cash flow from operating activities.




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Slide13-1)


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Slide13-1* SO # $repare a statement of cash flows usin! the indirect method.

$reparin! the Statement of Cash Flows$reparin! the Statement of Cash Flows$reparin! the Statement of Cash Flows$reparin! the Statement of Cash Flows

Indirectethod

llustration 13-&llustration


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Slide13-1+ SO # $repare a statement of cash flows usin! the indirect method.

$reparin!$reparin!

thethe

StatementStatementof Cashof Cash

FlowsFlows

$reparin!$reparin!

thethe

StatementStatementof Cashof Cash

FlowsFlows

llustration 13-&

Indirectethod


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Slide13-2.

SO # $repare a statement of cash flows usin! the indirect method.


0dditional information for 2.11:

1. 4he compan" declared and paid a 92?,777 cash dividend.

2. Issued 9117,777 of long%term +onds in direct echange for land.

3. ! +uilding costing 9127,777 and euipment costing 92:,777 were

purchased for cash.. 4he compan" sold euipment with a +oo5 value of 9>,777 -cost

9;,777, less accumulated depreciation 91,777 for 9,777 cash.

:. Issued ordinar" shares for 927,777 cash.

@. Depreciation epense was comprised of 9@,777 for +uilding and93,777 for euipment.


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Step 1: (perating 0!ti$ities

Determine net cash providedAused +" operating activities

+" converting net income from an accrual +asis to a cash

+asis.


Common adustments to /et n!ome oss:

!dd +ac5 non%cash epenses -depreciation and

amorti#ation epense.

Deduct gains and add losses that resulted from investing

and financing activities.

!nal"#e changes in non%cash current assets and current

lia+ilities.


Indirectethod


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llustration 13-11

Operatin! %ctivitiesOperatin! %ctivitiesOperatin! %ctivitiesOperatin! %ctivities

Changes to /on-Cash Current ia5ilit% 0!!ounts



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From the additional information, the compan" purchased landof

9117,777 +" issuing long-term 5onds. 4his is a significant

noncash investing and financing activit" that merits disclosure in

a separate schedule.


Step 2& Investin! and Financin! %ctivitiesStep 2& Investin! and Financin! %ctivitiesStep 2& Investin! and Financin! %ctivitiesStep 2& Investin! and Financin! %ctivities

and

161611 7alan!e 2.8...

ssued 5onds 11.8...

12631611 7alan!e 13.8...

7onds Pa%a5le

161611 7alan!e 2.8...

For land 11.8...

12631611 7alan!e 13.8...


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Investin! and Financin! %ctivitiesInvestin! and Financin! %ctivitiesInvestin! and Financin! %ctivitiesInvestin! and Financin! %ctivities

llustration 13-14Partial statement



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Investin! and Financin! %ctivitiesInvestin! and Financin! %ctivitiesInvestin! and Financin! %ctivitiesInvestin! and Financin! %ctivities

llustration 13-14Partial statement



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Slide13-2' SO # $repare a statement of cash flows usin! the indirect method.

StatementStatement

of Cashof Cash

FlowsFlows

StatementStatement

of Cashof Cash

FlowsFlows

llustration 13-14

Indirectethod

Step 3: /et

Change in

Cash


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Free Cash Flow

Free !ash flowdescri+es the cash remaining from

operations after adBustment for capital ependitures and

dividends.

SO ' %naly(e the statement of cash flows.

Usin! Cash Flows to )valuate a CompanyUsin! Cash Flows to )valuate a CompanyUsin! Cash Flows to )valuate a CompanyUsin! Cash Flows to )valuate a Company


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Slide13-2* SO ' %naly(e the statement of cash flows.

Usin! Cash Flows to )valuate a CompanyUsin! Cash Flows to )valuate a CompanyUsin! Cash Flows to )valuate a CompanyUsin! Cash Flows to )valuate a Company

llustration 13-1'


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Companies preparing finan!ial statements under 5oth F9S and

00P must prepare a statement of !ash flows as an integral

part of the finan!ial statements;

7oth F9S and 00P re


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The definition of !ash e


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0oo5ing to the Future0oo5ing to the Future

Understanding U;S; 00PUnderstanding U;S; 00PUnderstanding U;S; 00PUnderstanding U;S; 00P

Presentl%8 the F0S7 and the 0S7 are in$ol$ed in a oint proe!t on

the presentation and organi?ation of information in the finan!ial

statements; (ne interesting approa!h8 re$ealed in a pu5lished

proposal from that proe!t8 is that in the future the in!omestatement and statement of finan!ial position would adopt headings

similar to those of the statement of !ash flows; That is8 the in!ome

statement and statement of finan!ial position would 5e 5ro=en into

operating8 in$esting8 and finan!ing se!tions; @ith respe!t to the

!ash flow statement spe!ifi!all%8 the notion of !ash e


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0oo5ing to the Future0oo5ing to the Future

Understanding U;S; 00PUnderstanding U;S; 00PUnderstanding U;S; 00PUnderstanding U;S; 00P

liisting

literature would 5e retained8 and the statement of !ash flows would

present information on !hanges in !ash onl%; n addition8 the F0S7

fa$ors presentation of operating !ash flows using the dire!t methodonl%; Aowe$er8 the maorit% of 0S7 mem5ers e>press a preferen!e

for not re


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Usin! a *or+sheet to $repare the Statement of CashUsin! a *or+sheet to $repare the Statement of Cash

Flows,Indirect -ethodFlows,Indirect -ethod



llustration 130-1

0ppendi> 0

SO )/plain how to use a wor+sheet to prepare the statement of cash flowsusin! the indirect method.


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Slide13-34 SO )/plain how to use a wor+sheet to prepare the statement of cash flowsusin! the indirect method.

Preparing a @or=sheet

1. )nter in the statement of financial position accounts section the

statement of financial position accounts and their +eginning and

ending +alances.2. )nter in the reconciling columns of the wor5sheet the data that

eplain the changes in the statement of financial position accounts

other than cash and their effects on the statement of cash flows.

3. )nter the cash line and at the +ottom of the wor5sheet the increase

or decrease in cash. 4his entr" should ena+le the totals of the

reconciling columns to +e in agreement.






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Usin! a *or+sheetUsin! a *or+sheet

to $repare theto $repare the

Statement of CashStatement of CashFlows,IndirectFlows,Indirect

-ethod-ethod

Usin! a *or+sheetUsin! a *or+sheet

to $repare theto $repare the


Flows,IndirectFlows,Indirect

-ethod-ethod

llustration 130-3

Completed wor5sheet

indirect method


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Slide13-3' SO 0 $repare a statement of cash flows usin! the direct method.

1. $nder the direct method, companies compute net cash

provided +" operating activities +" adBusting each item in the

income statement from the accrual +asis to the cash +asis.

2. 4o simplif" and condense the operating activities section,

companies report onl" maBor classes of operating cash

receipts and cash pa"ments.

3. For these maBor classes, the difference +etween cash receipts

and cash pa"ments is the net cash provided +" operating

activities.

Statement of Cash Flows,irect -ethodStatement of Cash Flows,irect -ethodStatement of Cash Flows,irect -ethodStatement of Cash Flows,irect -ethod

0ppendi> 7


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llustration 137-2

SO 0 $repare a statement of cash flows usin! the direct method.

Step 1: (perating 0!ti$ities



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llustration 137-1




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llustration 137-1



!dditional information&

1. In 2711, the compan" declared and paid a 932,777 cash dividend.

2. ,777 cash when the +oo5 value of the

euipment was 91;,777.

:. 'rdinar" shares of 9@7,777 were issued to acuire land.


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llustration 137-3

Cash 9e!eipts from Customers


For uare# Compan", accounts receiva+le decreased 93,777.

llustration 137-&



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llustration 137-'

Cash Pa%ments to Suppliers


In 2711, uare# Compan"*s inventor" increased 917,777and cash pa"ments to suppliers were 9@>;,777.

llustration 137-+

llustration 137-)



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llustration 137-1.

Cash Pa%ments for (perating #>penses


Cash pa"ments for operating epenses were 91>?,777,

llustration 137-11



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llustration 137-12

Cash Pa%ments for n!ome Ta>es


Cash pa"ments for income taes were 92,777,

llustration 137-13



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n!rease in #,777 cash euipment

costing 927,777, whose +oo5 value was 91;,777.


Step 2: n$esting and Finan!ing 0!ti$ities


llustration 137-1&


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n!rease in and;uare#*s land

increased 9@7,777. 4he additional

information section indicates that the

compan" issued ordinar" shares topurchase the land.



Significant non%cash

investing and financing

transaction.

n!rease in 7onds Pa%a5le;


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n!rease in Share Capital - (rdinar%;

4he Share Capital % 'rdinar" account

increased 9@7,777. 4he additional

information indicated that uare#acuired land from the issuance of

ordinar" shares.



n!rease in 9etained #arnings;4he

9:2,777 net increase in etained

)arnings resulted from net income of

9;,777 and the declaration and

pa"ment of a cash dividend

of 932,777.

Financing activit" -cashdividend.

Significant non%cash

investing and financing

transaction.



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Step 3: /etChange in

Cash

Step 2:n$esting

and

Finan!ing

0!ti$ities

llustration 137-1'




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statement of cashflows slides