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Lecture 11 Statement of Cashflow - 11 LECTURE11 Xiaohui...

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Click to edit Master subtitle style   9/13/11   ©  Xiaohui  Liu, 2010 LECTURE 11 STATEMENT OF CASH FLOWS 11
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  9/13/11   ©  Xiaohui  Liu, 2010 OBJECTIVE Given a comparative Balance Sheet, an Income  Statement, and some additional information,  PREPARE A STATEMENT OF CASH FLOWS 22
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  9/13/11   ©  Xiaohui  Liu, 2010 UNDERSTAND A COMPANY’S  FINANCIALS Balance Sheet Financial Status (and Change) Income Statement Performance Statement of Retained Earnings Distribution of Earnings These three statements combined provide  33
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  9/13/11   ©  Xiaohui  Liu, 2010 UNDERSTAND A COMPANY’S  FINANCIALS CASH is important The definition of  bankruptcy  is “a legally declared  inability or impairment of ability of an individual  or organization to pay their creditors”. Apparently, a company’s CASH situation is critical  to its chance of survival. Hence we would like to know as much about  CASH as possible. 44
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  9/13/11   ©  Xiaohui  Liu, 2010 UNDERSTAND A COMPANY’S  FINANCIALS INCOME STATEMENT   For The Year Ended December 31, 2004 Revenues and gains: Sales revenue $670,000 Interest revenue 15,000 Gain on sale of machine 5,000 Total revenues and gains $690,000 Expenses and losses: Cost of goods sold $390,000 Salaries and wages 60,000 Depreciation 40,000 Insurance 12,000 Interest 15,000 55 *  This is an example used in Financial Accounting by Porter and Norton, Exhibit 12-11 and Exhibit 12-12
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  9/13/11   ©  Xiaohui  Liu, 2010 COMPARATIVE BALANCE SHEET 12/31/2004 12/31/2003 12/31/2004 12/31/2003 Cash $   35,000 $   46,000 Accounts Payable $    38,000 $    31,000 Accounts Receivable 63,000 57,000 Salaries and wages payable 7,000 9,000 Inventory 84,000 92,000 Income taxes payable 8,000 5,000 Prepaid insurance 12,000 18,000 Total current liabilities $ 53,000 $ 45,000 Total current Assets $ 194,000 $ 213,000 Notes payable $ 85,000 $ 35,000 Long-term investments $ 120,000 $ 90,000 Bonds payable 200,000 260,000 Land 150,000 100,000 Total long-term liabilities $ 285,000 $ 295,000 Property and equipment 320,000 280,000 Capital stock $ 100,000 $ 75,000 Accumulated depreciation (100,000) (75,000) Retained earnings 246,000 193,000 Total long-term assets $ 490,000 $ 395,000 Total stockholders’ equity $ 346,000 $ 268,000 Total Assets $ 684,000 $ 608,000 Total liabilities and SE $ 684,000 $ 608,000 66 UNDERSTAND A COMPANY’S  FINANCIALS
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  9/13/11   ©  Xiaohui  Liu, 2010 The ONLY thing we know now is that Cash level  DECREASED from $46,000 to $35,000 Questions come to mind: Is this a permanent trend? Will Julian’s CASH  decrease by similar amount every year? From Income Statement, it seems like Julian’s  having a good year (Net income $120,000). How  do we explain the CASH decrease in such a good  77 UNDERSTAND A COMPANY’S  FINANCIALS
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  9/13/11   ©  Xiaohui  Liu, 2010 STATEMENT OF CASH FLOWS For The Year Ended December 31, 2004          88 UNDERSTAND A COMPANY’S  FINANCIALS Cash Flows from OPERATING  activities Cash Flows from INVESTING  activities Cash Flows from FINANCING 
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