ac101_ch14 - ACC101 CHAPTER 14 Statement of Cash Flows 1...

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ACC101 – CHAPTER 14 Statement of Cash Flows 1
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3 Sections of the Statement of Cash Flows: Direct Method Cash received from customers: ± Sales (+decrease in A/R OR -increase in A/R) Less: payments to creditors and for expenses ± Cost of Mdse Sold +increase in inventories OR -decrease in inventories +decrease in A/P OR -increase in A/P ± Operating Expenses +decrease in accrued expenses OR -increase in accrued expenses ± Interest Expense +decrease in interest payable OR -increase in interest payable ± Income Tax Expense +decrease in income tax payable OR -increase in income tax payable =Net Cash Flows from Operating Activities OR Indirect Method Net Income Add: Decreases in Current Assets Increases in Current Liabilities Noncash expenses (i.e., depreciation and amortization) Losses Deduct: Increases in Current Assets Decreases in Current Liabilities G a i n s =Net Cash Flows from Operating Activities #2 – Cash Flows from Investing Activities Cash inflows from: Sale of Long-term Assets o Property, Plant or Equipment o Intangible assets o Investments Less: Cash outflows from: Purchase of Long-term Assets o Property, Plant or Equipment o Intangible assets o Investments
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#3 – Cash Flows from Financing Activities Cash inflows from: Issuing debt or equity securities o Issuing bonds o Issuing Stocks (Common and Preferred) o Reissuing Treasury Stocks o Issuing other long-term debts (mortgage payable, notes payable) Less: Cash outflows from: Retiring debts, repurchasing equity securities and paying dividends o Payments to retire bonds o Payments to retire other long-term debts o Payments for Dividends o Payments to purchase Treasury Stock =Net Cash Flows from Financing Activities **Noncash Financing/Investing activities are reported in a separate schedule that appears at the bottom of the Statement of Cash Flows. (i.e. issuing stock to retire bonds) Practice Problem #1 Identify which section of the statement of cash flows each of the following events would appear in (operating, investing, financing or in a separate schedule) a. Purchased a Patent b. Sold Treasury stock c. Net Income d. Sold long-term investments e. Purchased a building f. Issued bonds. g. Paid dividends h. Recorded depreciation expense for the year i. Issued common stock to retire a mortgage j. Purchased treasury stock Practice Problem #2 For each of the following situations indicate the items to be reported on the statement of cash flows. Be sure to include the section of the statement the item would appear in and the amount. a. The board of directors declared cash dividends totaling $240,000 during the current year. The comparative balance sheet indicates dividends payable of $50,000 at the beginning of the year and $60,000 at the end of the year.
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This note was uploaded on 06/01/2011 for the course ACCOUNTING 101 taught by Professor All during the Spring '11 term at Harper.

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ac101_ch14 - ACC101 CHAPTER 14 Statement of Cash Flows 1...

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