Cash-Flow-Page-B-10-Explanation-1

Cash-Flow-Page-B-10-Explanation-1 - EXAMPLE #1 - Page B-10...

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EXAMPLE #1 - Page B-10 in Printed Module Scroll down to Cell A 50 for explanation, or Click on the button to split the screen >>>> Summary Cash Flow Statement for the two months ended August 31, 20XX OPERATING ACTIVITIES NI $1,820 DEPRECIATION $3,166 $4,986 CHANGES IN WORKING CAPITAL ACCOUNTS Note RELATED TO THE INCOME STATEMENT ACCOUNTS RECEIVABLE $3,000 INVENTORY ($20,000) PREPAID RENT ($2,000) CUSTOMER ADVANCES $1,000 ACCOUNTS PAYABLE ($5,500) ACCRUED SALARIES $500 INCOME TAX PAYABLE/BENEFIT $1,214 CASH FROM (USED IN) OPERATIONS ($16,800) INVESTING ACTIVITIES PURCHASED ASSETS ($230,000) SOLD ASSETS $0 CASH FROM (USED IN) INVESTING ($230,000) FINANCING ACTIVITIES BORROWED MONEY $50,000 REPAID LOANS ($50,000) SOLD STOCK $240,000 BOUGHT TREASURY STOCK $0 PAID DIVIDENDS $0 CASH FROM (USED IN) FINANCING $240,000 INCREASE (DECREASE) IN CASH ($6,800) BEGINNING CASH BALANCE $15,000 ENDING CASH BALANCE $8,200 Explanation of How to Prepare the Summary Cash Flow Statement on Page B Some numbers came from the income statement on page B-5 and others came the beginning and ending balance sheets on page B-9 - as is explained below. A) From the Income Statement NI = 1,820 Depreciation = 3,166 Both of the above came form the income statement on page B-5. B) From the Current Asset and Current liabilities section of the Balance Sheet. Notice that a separate section of the Operating Activities section of the Cash Flow Statement is titled: "Changes in Working Capital Accounts Related to the Income
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because we do not analyze here the two interest-bearing current liability accounts: * Short-term notes payable, and * Current portion of long-term debt and capital leaseobligations. These two accounts are not related to the income statement, they are related to debt So they are analyzed in the Financing Activities section of the Cash Flow Statement. Current asset and current liability accounts are called Working Capital Accounts because they "work with" the income statement - a change in a current asset or a current liability means one of two things: a) either a credit sale or credit expense has been realized on the income statement - which means that cash flow must be adjusted to reflect these non-cash
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Cash-Flow-Page-B-10-Explanation-1 - EXAMPLE #1 - Page B-10...

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