accting 301 ch12 min shen

accting 301 ch12 min shen - CH 12 The Statement of Cash...

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1 CH 12 – The Statement of Cash Flows W. T. Grant The statement of cash flows explains how the cash balance at the beginning of the period became the cash balance at the end of the period.
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2 Classifications of Cash Flows: Operating activities: Activities related to the cash inflows and outflows resulting from the normal operations of the firm. Cash received from customers Purchase of goods and services Payments for salaries, taxes, interest, utilities, etc. Investing activities: Activities related to the cash inflows or outflows from the buying or selling of any long-term assets of the firm (other than its primary products). Sale proceeds from disposal of PP&E/investment in securities Purchase of PP&E/investment in securities Financing activities: Activities related to cash inflows and outflows from transactions with owners and creditors who supply "funds" to operate the firm and a return to the owners (dividends). Borrowing on notes or bonds Issuing stocks Repayment of liabilities Dividends Ultimately, enough cash must be generated to pay the bills and in the long run where the cash comes from is important. Approaches for preparing SCF (involving only operating activities section) 1. Direct method: reports the components of cash flows from operating activities listed as gross receipts and gross payments. Cash inflows and outflows cannot be obtained from T-accounts because amounts are based on accrual accounting. We must adjust them to a cash basis.
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3 Example-accrual to cash flow : What’s Up has the following balances on its balance sheet at the beginning and end of 2010: 1/1/10 12/31/10 A/R $20,000 $25,000 Prepaid Rent 2,000 5,000 Interest Payable 5,000 3,000 Available information from the income statement is that credit sales were $250,000, rent expense of $22,000 and interest expense of $30,000 were reported. What were the cash collections from A/R's, and the cash paid for rent and interest?
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4 Example: Kay Corporation has the following balances on its balance sheet and income statement: 1/1/05 12/31/05 A/R $33,000
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This note was uploaded on 02/16/2011 for the course ACCOUNTING 301 taught by Professor Chen during the Spring '10 term at George Mason.

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accting 301 ch12 min shen - CH 12 The Statement of Cash...

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