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C21 - 1 Chapter 21 The Statement of Cash Flows 2 Objectives...

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1 The Statement of Cash Flows C hapter 21
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2 1. Define operating, investing, and financing activities. 2. Know the categories of inflows and outflows of cash. 3. Classify cash flows as operating, investing, or financing. 4. Explain the direct and indirect methods for reporting operating cash flows. 5. Prepare a simple statement of cash flows. Objectives Continued
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3 6. Use a worksheet for a statement of cash flows. 7. Compute and disclose interest paid and income taxes paid. 8. Identify the operating cash inflows and outflows under the direct method (Appendix). 9 . Compute the operating cash flows under the direct method (Appendix). Objectives
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4 Operating Activities Operating activities include all transactions and other events that are not investing and financing activities. Operating activities include transactions involving acquiring, selling, and delivering goods for sale, as well as providing services. Cash receipts from the sale of goods or services and collections of accounts receivable are typical cash inflows from operating activities. Cash payments to suppliers for inventory and on account, for wages, and for taxes are examples of cash outflows from operating activities.
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5 Investing Activities Typical investing activities include transactions involving: Lending money and collecting on the loan Acquiring and selling investments (both current and noncurrent) Acquiring and selling property, plant, and equipment.
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6 Financing Activities Typical financing activities include transactions involving: Obtaining resources from owners Distributing returns to owners Obtaining resources from creditors Repaying creditors
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7 Equation for Change in Cash Increases in Cash = Increases in Liabilities + Increases in Stockholders’ Equity + Decreases in Assets Other Than Cash This equation is based on the fundamental accounting equation: A = L + SE
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8 Equation for Change in Cash Decreases in Cash = Decreases in Liabilities + Decreases in Stockholders’ Equity + Increases in Assets Other Than Cash And...
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9 Inflows of Cash 1. Decreases in Assets Other than Cash. The sale or disposal of a noncash asset causes an inflow of cash. 2. Increases in Liabilities. The issuance or other incurrence of liabilities causes an inflow of cash. 3. Increases in Stockholders’ Equity. Net income and additional investments by owners result in an inflow of cash.
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10 Outflows of Cash 1. Increase in Assets Other than Cash. The acquisition of noncash assets causes an outflow of cash. 2. Decreases in Liabilities. The payment of liabilities causes an outflow of cash. 3. Decreases in Stockholders Equity. The payment of dividends and the acquisition of treasury stock are two common transactions that result in an outflow of cash.
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11 Net Cash Flow from Operating Activities Decrease in Accounts Receivable Increase in Accounts Receivable + - or = Increase in Increase in Cash Cash Inflows Inflows From From Operating Operating Activities Activities = Sales Revenues
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12 Decrease in Accrued Payables and Increases in Inventory Increase in Accrued Payables and
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