Session 4 - Actg 500: Intro to Financial Accounting Meeting...

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Lect 4, slide 1 Actg 500: Intro to Financial Accounting Meeting #4: Review Cash Flows then Accruals (especially cases!) Professor Ryan Casey College of Business Administration University of Illinois at Chicago
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Lect 4, slide 2 Summary of Meeting #2 and 3 Lectures Lecture 2 on Wealth statements, B/S and I/S Value of financial reporting depends on users, it links cash flow to wealth creation. B/S shows balances of cash wealth and other I/S shows how wealth created. Other measures not on F/S, (e.g., EBIT and FCF) often used, but have many definitions Lecture 3 on CF/S Cash vs accruals over firm life cycle Purpose and types of CF/S Analysis of the CF/S & reconciling to I/S
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Lect 4, slide 3 Outline of Meeting #4 Lecture Review of Cash flows Cases (as time permits) Accruals (AT Cross and UAL freq flyer) Accounting for A/R (CitiCorp) Expense vs capitalization (PWA) Accounting Changes (Bethlehem)
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Lect 4, slide 4 Operating CF: Indirect Method To arrive at OCF, start with Net Income and make adjustments: Add non-cash charges, (depreciation) Account for differences between payments and expense via changes in current asset and liability accounts Remove income effects associated with investing activities (gains/losses)
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Lect 4, slide 5 Warning…Warning…Warning. .. Depreciation is NOT a Cash Flow. To see this, consider what happens to cash flow if we double depreciation expense? Adding depreciation to net income does not mean it generates cash!!!
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Lect 4, slide 6 HINT: OCF under Indirect Method Simplify your thinking as follows: Net Inc = Revenue – expenses OCF = collections - operating payments All other items just show differences between NI and OCF;
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Lect 4, slide 7 Other Description Cash ST Invest Acc Rec. Inventory Ppd Exp. PPE Assets Acct Pay Acc Lia Tax Pay Crnt Debt L-T Debt Cap Stck Ret. Erngs Beginning balances 47,318 1,542 12,710 11,122 2,378 62,724 8,677 3,832 19,434 5,208 5,402 25,676 47,833 39,086 Sales on account 209,203 209,203 Cash collections from cust 210,575 (210,575) Purchased inventory 138,193 138,193 COGS (136,225) (136,225) Payment to suppliers
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Session 4 - Actg 500: Intro to Financial Accounting Meeting...

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