Reimersppt_ch11 - Chapter 11 Preparing and Analyzing the...

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Chapter 11 Preparing and Analyzing the Statement of Cash Flows
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In Chapter 10 You learned how a company accounts for and reports: o Contributions from Stockholders o Payments of Dividends o Retained Earnings
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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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Categories of Cash Flows Cash Flows are subdivided into three categories: Operating – Cash Receipts and Cash Disbursements from day to day transactions. These transactions are generally from the Income Statement and affect Current Assets and Current Liabilities Investing – Cash Receipts and Cash Disbursements from the purchase and sale of Long-Term Assets Financing – Cash Receipts and Cash Disbursements from Long-term Debt and Equity
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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 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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Let’s look at Some Simple Transactions: 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
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Reimersppt_ch11 - Chapter 11 Preparing and Analyzing the...

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