5_ Balance Sheet vs Statement of Cash Flows

5_ Balance Sheet vs Statement of Cash Flows - Objectives...

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Objectives Understand how to derive the indirect SCF from the income statement and balance sheet – solidify the difference between accrual accounting and cash Understand Additional SCF details/complications Agenda Deriving the SCF Creating your own direct cash flow statement from the indirect one Why Balance Sheet Changes Don’t Always Agree with SCF Gains and Losses in the SCF Other Required Disclosures Take-Aways
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Simple Example 1. Purchase inventory on account for $50 2. Sell $30 worth of inventory for $90 on account 3. Collect $70 worth of accounts receivable 4. Pay off $40 of accounts payable 5. Employees earn salaries of $10 ($8 paid in cash, $2 accrued) 6. Depreciation on equipment is $5 Construct the Operating section of the statement of cash flows using both the direct method and indirect method CFS Direct Method Customer Payment 70 Supplier Payment -40 Employee Payment - 8 CFO 22 Note: There are no CFI or CFF items. Cash increased by $22 – all because of operational items. Indirect SCF – Operations Sections Start with Net Income adjustments to get to CFO (see 5 cases last class): * add back expenses that did not consume cash (i.e. Depreciation, Increases in A/P); * subtract revenues that did not generate cash (Change in A/R); *
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This note was uploaded on 10/17/2011 for the course MGMT 600 taught by Professor Johnston during the Spring '11 term at Purdue University-West Lafayette.

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5_ Balance Sheet vs Statement of Cash Flows - Objectives...

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