Chapter

13 Statement of Cashflows Notes

Purpose: provides information that enables users to assess a company’s ability to
generate cash, and to assess what the company did with that cash.

The statement of cashflows is a required statement.

Classification of Cashflows:

Operating Activities: Determine the net cash provided (used) by operating
activities by converting net income from an accrual basis to a cash basis. To do this,
analyze the current year’s income statement, relevant current assets and current
liability accounts from the comparative statement of financial position, and selected
information.

Investing Activities: Determine the net cash provided (used) by investing activities
by analyzing changes in non-current asset accounts from the comparative statement
of financial position and selected information.

Financing Activities: Determine the net cash provided (used) by financing activities
by analyzing changes in non-current liability and equity accounts from the
comparative statement of financial position and selected information.


Significant non cash activities

Significant investing and financing activities that do not affect cash are not reported
in the body of the SCF
(1) issue of debt or shares to purchase assets
(2) conversion of debt to equity
(3) exchange of PP&E


Methods to Prepare SCF

Direct or Indirect

Indirect Method
Info needed to prepare SCF:
i) comparative stmt of financial position
ii) income statement
iii) additional inform

Steps to prepare Indirect SCF
i) prepare operating activities section

ii) prepare investing activities section
iii) prepare financing activities section
iv) complete the SCF


Conversion to Net Cash provided (used) by operating activities – Indirect
method

Depreciation expense
Add
(property and equipment)
Noncash expenses
Amortization expense
Add
(intangible assets)
Losses including
Add
impairment losses
Losses and gains
Gains and reversal of
Deduct
impairment losses
Increase in current asset
Deduct
account
Decrease in current asset
Changes in certain Add
account
noncash current asset and
Increase in current
current liability accounts Add
liability account
Decrease in current
Deduct
liability account