Professional Documents
Culture Documents
Learning Objectives
1. Purpose of the Statement of Cash Flows
2. Reporting Cash Flows
3. Statement of Cash Flows – The Indirect Method
4. Statement of Cash Flows – The Direct Method
5. Financial Analysis and Interpretation
Reporting Cash Flows
Cash
Cash Flows
Increases in Cash Decreases in Cash
Operating
(receipts from
revenues)
Cash
Cash Flows
Increases in Cash Decreases in Cash
Operating Operating
(receipts from (payments for
revenues) expenses)
Cash
Cash Flows
Increases in Cash Decreases in Cash
Operating Operating
(receipts from (payments for
revenues) expenses)
Investing Cash
(receipts from sales of
noncurrent assets)
Cash Flows
Increases in Cash Decreases in Cash
Operating Operating
(receipts from (payments for
revenues) expenses)
Operating Operating
(receipts from (payments for
revenues) expenses)
Financing
(receipts from issuing
equity and debt securities)
Cash Flows
Increases in Cash Decreases in Cash
Operating Operating
(receipts from (payments for
revenues) expenses)
Financing Financing
(receipts from issuing (payments for dividends, and
equity and debt securities) redemption of debt securities)
Cash Flows – Operating Activities
Typical cash inflows Typical cash outflows
Sales of goods
and services What are some
of the typical
Interest Revenue cash outflows
from operating
Dividend Revenue activities?
Cash Flows – Operating Activities
Typical cash inflows Typical cash outflows
Tax payments
Cash Flows – Investing Activities
Typical cash inflows Typical cash outflows
Sales (issuance)
of stock What are some
of the typical
Sale (issuance) of
cash outflows
bonds and other money
market debt
from financing
activities?
Borrowing from banks
and other lending
institutions
Cash Flows – Financing Activities
Typical cash inflows Typical cash outflows
Direct Method
Net cash flows from operating activities will be
the difference between the operating cash
receipts and operating cash payments.
Indirect Method
Net cash flows from operating activities is
determined by adjusting the accrual net income
from operations to reflect a cash-based net income
from operations.
Advantages of Using the Direct Method
NetSolutions
Statement of Cash Flows – Indirect Method
For the Month Ended November 30, 2002
Cash flows from operating activities:
Net income, per income statement $ 3,050
Add increase in accounts payable400
Deduct increase in supplies (550)
Net cash flow from operating activities $ 2,900
NetSolutions
Statement of Cash Flows – Direct Method
For the Month Ended November 30, 2002
Cash flows from operating activities:
Cash received from customers $ 7,500
Deduct cash payments for expenses
and payment to creditors 4,600
Net cash flow from operating activities $ 2,900
NetSolutions
Statement of Cash Flows – Indirect Method
For the Month Ended November 30, 2002
Cash flows from operating activities:
Net income, per income statement $ 3,050
Add increase in accounts payable400
Deduct increase in supplies (550)
Net cash flow from operating activities $ 2,900
Cash Relationships and Cash Flows
Balance Sheet
Cash
Liabilities
Noncash
Assets Stockholders’
Equity
This gain was included in net income but did not represent an
operating cash flow. The related cash inflow from the sale is
reported in the cash flows from investing activities section.
Changes in Current Accounts
Change
Accounts 2003 2002 Debit Credit
Trade receivables (net) $74,000 $65,000 9,000
Inventories 172,000 180,000 8,000
Accounts payable (mdse.) 43,500 46,700 3,200
Accrued expenses payable 26,500 24,300 2,200
Income taxes payable 7,900 8,400 500