Module 3 Lecture 5 - Fall 2010 Module 3 Accounting &...

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David Robinson © D. Robinson, 2010 Fall 2010 Module 3 Lecture 5: Statement of Cash Flows Auditing
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Accounting Finance Managerial Financial Auditing How investors use their money How firms raise money Three financial statements Forms of business Income St. Balance Sheet St. Cash Flows
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Lecture Outline 1. Why we need the Statement of cash flows 2. Auditing: What it is, why it’s important 3. Audit failures of the late 1990s 4. Sarbanes-Oxley Act as a respons 5. Common sense and auditing 6. Take accounting entries seriously
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Why we need the Statement of Cash Flows 22 Format for the Income Statement Revenues “Net sales” -Expenses COGS ------------- “Gross profit” -Depreciation -SG&A -Interest Income (“Profit”) Tax (Corporate Income Tax) Net Income (“ Bottom line ”) Before tax Net Income/number of shares = “Earnings per share” Format of the Balance Sheet 1. Assets a. Current Assets b. Fixed (or long-term) assets 2. Liabilities a. Current Liabilities b. Long-term Liabilities 3. Owners’ Equity We can’t see if/where dividends were paid, or if and how we raised new money from just the Income St. & Balance Sheet
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Statement of Cash Flows 1 . Cash flows from operations a. + our income b. - building up inventory, more money owed to the firm 2. Investing a. + sale of investments or equipment b. - buying long term PPE 3. Financing a. + Money from stock and bond sales b.- Dividends paid, bonds paid off
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“Adding Back” Depreciation 1 . Cash flows from operations a. + our income + this year’s depreciation shown on the Income Statement b. - building up inventory, more money owed to the firm Why? It’s a “non-cash expense”
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“Adding Back” Depreciation 1 . Cash flows from operations a. + our income + this year’s depreciation shown on the Income Statement b. - building up inventory, more money owed to the firm Why? It’s a “non-cash expense”
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“Accumulated Depreciation” End of Year Depreciation Accumulated Depreciation Net asset value (“Book Value”) 1 $3,000 $3,000 $12,000 2 $3,000 $6,000 $9,000 3 $3,000 $9,000 $6,000 4 $3,000 $12,000 $3,000 5 $3,000 $15,000 $ -0- $3,000 is “expensed” each year In Yr 2, whom did we write the check for $3,000 to?
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End of Year Depreciation Accumulated Depreciation Net asset value (“Book Value”) 1 $3,000 $3,000 $12,000 2 $3,000 $6,000 $9,000 3 $3,000 $9,000 $6,000 4 $3,000 $12,000 $3,000 5 $3,000 $15,000 $ -0- $3,000 is “expensed”
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Module 3 Lecture 5 - Fall 2010 Module 3 Accounting &...

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