Chapter 11 lecture - Chapter 11 Preparing and Analyzing the Statement of Cash Flows In Chapter 11 You will learn how to o Prepare a Statement of

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Chapter 11 Preparing and Analyzing the Statement of Cash Flows
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In Chapter 11 You will learn how to: o Prepare a Statement of Cash Flows…. o …from an Income Statement, o and a comparative Balance Sheet
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Classification of Cash Flows
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Accrual Basis versus Cash Basis of Accounting Accrual Basis – Recognizes Revenues at the time the earnings process is complete, and expenses at the time they are incurred, regardless of cash flow. Cash Basis – Recognizes Revenues when the Cash is Received, and Expenses at the time the Cash is Paid.
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Financial Statements are prepared using the Accrual Basis of Accounting The Statement of Cash Flows – Requires that the Accrual Basis be converted back to the Cash Basis of Accounting. This Can be Done either: Directly – by examining each item on the Income Statement, or Indirectly – By Adjusting Net Income for the changes in the Non-Cash Balance Sheet Accounts.
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Sales $600 ($500 Cash, $100 on Account) Cost of Goods Sold was $250 Cash Accounts Receivable $500 $100 Sales $600 Cost of Goods Sold $250 Inventory $250 Statement of Cash Flows Direct Method
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Supplies Expense Supplies $20 $10 Cash $30 Paid $30 for Supplies: Used $20 of them; $10 remain Statement of Cash Flows Direct Method
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Inventory Accounts Payable $250 $50 Cash $200 Purchased $250 of Inventory; Paid $200 Cash, $50 on account. Statement of Cash Flows Direct Method
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« Total Cash Provided by Operating Activities Statement of Cash Flows Direct Method
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Statement of Cash Flows – Indirect Method If Any If Any If Any Changes in Current Assets Adjust in Opposite Direction Subtract the Increase Add the Decrease Changes in Current Liabilities Adjust in Same Direction Add the Increase Subtract the Decrease Equals Net Operating Cash Flow
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Net Operating Cash Flow Is the Same using both the Direct and Indirect Methods
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Statement of Cash Flows – Indirect Method Uses information from the Income Statement and the Comparative Balance Sheet
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This note was uploaded on 11/24/2009 for the course BA 2301 taught by Professor Mattpolze during the Fall '08 term at University of Texas at Dallas, Richardson.

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Chapter 11 lecture - Chapter 11 Preparing and Analyzing the Statement of Cash Flows In Chapter 11 You will learn how to o Prepare a Statement of

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