3achapter12 - Overview Statement of Cash Flows BECAUSE of...

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06:17 12-1 Statement of Cash Flows Chapter 12 12-2 Overview BECAUSE of the SCF, users of the financial statements get the best of both worlds! SCF bridges the gap created by “paper income” resulting from applying an accrual basis of accounting. Reconciles GAAP income to operating cash flows and separately displays cash from investing and financing activities. 12-3 Illustration (40) (30) (20) (10) - 10 20 30 40 50 2001 2002 2003 2004 2005 2006 Income Operating cash flow s Got any thoughts about the above chart??? Like: If the Company is showing all this income, why is the operating cash flow not tracking income? 12-4 Statement of Cash Flows- summary This will mean more later, but a statement of cash flows is an analysis of the change in the balance sheet accounts. A=L + E If you reconcile the change in each of your balance sheet accounts, your SCF will work!! The key is presentation- Operating vs. Investing Vs. Financing activities.
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06:17 12-5 Overview- how it works Cash from operations: Shows the cash provided by operations Typical presentation called “indirect” because it reconciles the net income (accrual) to cash from operations. Think of it as net income, adjusted for non-cash activities, including changes in current assets- SO ITS LIKE AN INCOME STATEMENT ON THE CASH BASIS. Cash from investing: Gross! Shows cash from investing activities Think of it as cash from long-term assets, similar to unusual items in the income statement. Cash from financing: Gross! Shows cash from financing activities Think of it as cash from borrowing and equity transactions THE FIRST LINE OF INDIRECT METHOD STATEMENT OF CASH FLOWS IS ALWAYS: NET INCOME!! 12-6 Operating section- Indirect Method Reconciles net income to cash flows from operations by: Starts with net income and seeks to reconcile that number to the cash actually generated from operations Removes non-cash items, like depreciation & amortization Removes items which will be presented in the investing and financing sections separately i.e remove gains from sales of long-term assets Shows changes in current assets Think about it- if there is a $10k sale on credit, does this impact net income? How about cash? Net income, adjusted for the CHANGE IN A/R will deal with this!!! 12-7 Convert Net Income to Cash Is depreciation expense included in net income? YES Does depreciation expense impact cash? NO So we add depreciation expense back . Are all sales reported on the income statement collected in cash yet? NO Could we have collected some cash this year that relates to sales reported in the prior year net income? YES So we need to adjust sales to the cash collected. The change in receivables does this for us.
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3achapter12 - Overview Statement of Cash Flows BECAUSE of...

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