chapter23

chapter23 - Overview Statement of Cash Flows BECAUSE of the...

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13:11 23-1 Statement of Cash Flows Chapter 23 23-2 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. 23-3 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? 23-4 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. 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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13:11 23-5 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 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 23-6 STATEMENT OF CASH FLOWS EXAMPLE 23-7 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 A/R increased $100k, how does this impact cash? 23-8 Operating section illustration Opening balance 1,000,000 Sales on credit 10,000,000 Cash sales 100,000 Collections 9,500,000 Opening balance 1,000,000 Sales on credit 10,000,000 (10,000,000) Cash sales (100,000) Collections (9,500,000) Ending 1,500,000 (10,100,000) Change in A/R 500,000 Net income 10,100,000 Adjustments to reconcile net income to cash provided by operations: Increase in accounts receivable (500,000) Cash provided by operations 9,600,000 We collected 9,500,000 We made cash sales 100,000 9,600,000 LETS CHECK IT- FROM ABOVE Accounts Receivable NET INCOME ASSUMED ACTIVITY: HOW THE STATEMENT OF CASH FLOWS WOULD APPEAR:
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13:11 23-9 Investing section Now that the operating section reflects ONLY operating activities, this section shows just the cash from investing activities (principally
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This note was uploaded on 12/25/2011 for the course ECON 136C taught by Professor Anderson during the Fall '08 term at UCSB.

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chapter23 - Overview Statement of Cash Flows BECAUSE of the...

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