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Financial Statements & › Reports the Cash Flow Analysis entity’s cash

flows – cash receipts and cash payments – during the period › Summarizes all the transactions that affect the Cash account for a period of time

Financial Statements

Balance sheet Income statement Statement of retained earnings Statement of cash flows

Ability to meet its obligations and to pay dividends. Helps investors with questions about the company’s: Ability to generate positive cash flows.Provides information about the cash receipts and cash payments of a business entity during the accounting period. Investing and financing transactions for the period. Need for external financing. .

. This statement reports cash inflows and outflows based on the firm’s operating activities activities.A summary of a firm’s receipts and payments during a period of time. investing activities and activities. financing activities activities.

The cash flow statement helps to: › Predict future cash flows › Evaluate management decisions › Determine the company’s ability to pay dividends and debt › Show the relationship of net income to cash flow .

Operating Activities INFLOWS Investing Activities Financing Activities OUTFLOWS Operating Activities Investing Activities Financing Activities .

Revenues do not equal cash collected Net income not equal to change in cash Expenses do not equal cash paid .

There are two ways to format operating activities on the cash flow statement: › Direct method – reports all cash receipts and cash payments from operating activities › Indirect method – reconciles net income to net cash provided by operating activities Both methods arrive at the same totals for cash flow Accounting Standards Board (AcSB) approved both formats. but encourages the direct method .

Indirect Approach Company Name Statement of Cash Flows Period Covered Cash flows from operating activities: [List of individual inflows and outflows] Net cash provided (used) by operating activities Cash flows from investing activities: [List of individual inflows and outflows] Net cash provided (used) by investing activities Cash flows from financing activities: [List of individual inflows and outflows] Net cash provided (used) by financing activities Net increase (decrease) in Cash $ ##### ##### ##### $ ##### ##### Cash (and equivalents) balance at beginning of period $ ##### Cash (and equivalents) balance at end of period .

20X2 Direct Approach Cash flows from operating activities: Receipts: Collections from customers Interest received on notes receivable Dividends received on investments in stock Total cash receipts Payments: To suppliers To employees For interest For income tax Total cash payments Net cash inflow from operating activities: Cash flows from investing activities: Acquisitions of plant assets Loan to another company Proceeds from sale of plant assets Net cash outflow from investing activities: Cash flows from financing activities Proceeds from issuance of common stock $ 101 Proceeds from issuance of long-term debt Payment of long-term debt Payment of dividends 94 (11) (17) $ (306) (11) 62 (255) $(133) (58) (16) (15) (222) 68 $ 271 10 9 $ 290 .ANCHOR CORPORATION Statement of Cash Flows Year Ended December 31.

longterm Liabilities .Operating activities › Result from revenues and expenses. Current Assets & Current Liabilities Investing activities › Result from long-term assets Financing activities › Result from stockholders’ equity.

Customer collections Receipts of interest and dividends on investments Other operating receipts Payments to suppliers Operating Activities Payments to employees Payments of interest. income tax Other operating disbursements Sale of plant assets Sale of investments that are not cash equivalents Receipts on loans receivable Issuing Shares Selling Preference Sharesa Borrowing money Acquisition of plant assets Investing Activities Purchase of investments that are not cash equivalents Distribution of loans Payment of dividends Financing Activities Payments of LT Loans Payment of principal amounts of debts .

Cash Flow From Operating Activities › Direct method or indirect method (direct requires also a reconciliation of net income to cash flow from operating activities) Cash Flow from investing activities Cash Flow from financing activities Total (positive or negative) cash flow is added to beginning cash balance and should result in ending cash balance .

Includes: › Current assets › Current Liabilities › Revenue and Expenses .

Plant and Equipment (depreciation affects operating activities) › Intangible Assets (LT) .Includes: › long-term investments › long term notes receivable › Property.

Includes: › Long-term loans › Share Capital and Paid in Capital in excess of par › Dividends Paid .

decreases in current liabilities = Net cash from operating activities .Gains from sale of assets › (full amount of sale already included in investing section) .Net Income + Depreciation exp (noncash exp) + Losses from sale of assets › (full amount of sale already included in investing section) .increases in current assets + decreases in current assets + increases in current liabilities .

+ Cash Received from Customers .Cash paid for operating expenses .Cash paid for income taxes .Cash paid for inventory .Cash paid for interest + Cash received from dividends and interest = Net cash from operating activities .

Operating Cash Flows Current Assets Current Liabilities Long-Term Liabilities Owners’ Equity Operating Cash Flows Financing Cash Flows Investing Cash Flows Long-Term Assets .

plus temporary investments that are highly liquid (e. Liquid liabilities (e. g. g.Cash and cash equivalents include cash.. maturities of three months or less): money market accounts treasury bills Marketable Securities are often excluded. line of credit) can be considered “negative” cash equivalents.. .

000 Buildings 83.000 310.000 and Stock dividend of Rs 35000.000 30.000 310. 45.200 2010 2009 333.000 25000 75.000 112.000 105.000 180.000 65.000 62.000 (48.000 Intangible Assest Good Will 20.000 265.000 38.000) (35.000 Acc Rec 45.000 120.000 140. 2010 Equities & Liabilities 2010 Equity Share Capital Retained Earnings Assets 2009 Fixed Assets 250.000) 152.000 .000 65.000 2.000 0 Cash 56.000 25.000 Current Assets 50.000 445.800 1.000 Less All for Dep 200. 273.ABC Company Balance Sheet As at Dec 31.000 445.000 40.000 Liabilities Long Term Loan Accounts Payable During the year 2010. Co declared and paid cash dividend of Rs 20.000 Inventory Market Securities Supplies Required: Prepare Cash flow statement for the year ended Dec 31. 2010.000 200.

000 Machinery Assets 2009 2010 110.000 7.000 40.000 50.000) Liabilities Current Assets Bonds payable 75. Co declared and paid cash dividend of Rs 45.000 135.000) (30.000 Equipments 65.000 Less All for Dep (20.000 40.000 400.000 150.500 Required: Prepare Cash flow statement for the year ended Dec 31.000 400.500 393.000 During the year 2010.000 0 Cash 36.000 393.000 Stock Prepaid Insurance 45.000 Retained Earnings 30.000 .000 140.000 Acc Rec 10.000 2010 Fixed Assets 300.000 9. Accounts Payable Accrued Expenses 58.000 25.000 80. 2010.000 20. 2010 Equities & Liabilities 2009 Equity Share Capital 210.ABC Company Balance Sheet As at Dec 31.

2009 Acc Rec Accounts Payable Accrues expenses Bonds payable Building Cash Inventory Land Patents Prepaid Expenses Retained Earning Share capital 30.400 10.000 24.000 ? 22.000 2010 19.000 42.000 ? During the year 2010.000 8.000 .000 17.000 25.000 30. Co declared and paid cash dividend of Rs 5.000 100.000 20. 2010.000 13.000 5.000 - 15.400 96.600 Required: Prepare Cash flow statement for the year ended Dec 31. 4.000 40.000 10.

000 25. Co declared and paid cash dividend of Rs 4.2010 Acc Depreciation Acc Rec Accounts Payable Cash Equipments Inventory Mortgage Payable Retained Earning Share capital 6.000 16. 2010. Share Premium 2. 30.000.500 .100 ? 6.000 0 Required: Prepare Cash flow statement for the year ended Dec 31. While they disposed off an equipments for Rs 2500 costing Rs 2.000 33.700 4.500 2009 19.000.200 10.800 9.100 8.400 ? 24.300 During the year 2010.500 16.000 30.000 12.800 7.