Session 9 (Repaired).docx

# 8 taxes payable 8 8 tax expense 8 total change in

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+ 8 Taxes Payable -8 +8 Tax Expense -8 TOTAL CHANGE IN CASH GIVEN FINANCIAL STATEMENT EFFECTS TEMPLATE 375 Operating Cash Flows Investin g Cash Flows Financin g Cash Flows Total Change in Cash +507-84-24+60- 200-15+6 -12 +120+20 -3 6

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Riffe – ACCT 6201 – Session 9 –Fall 2018 250 -12 137 375 7
Riffe – ACCT 6201 – Session 9 –Fall 2018 Change in Cash is Equal to the Change in Balance Sheet Accounts Look back at the financial statement template and observe when the cash account changes, there are offsetting changes on the balance sheet, so the balance sheet still balances. The balance sheet identity equation can be rewritten to separate cash and noncash assets Cash Assets + Noncash Assets = Liabilities + Stockholders Equity Taking the change in all elements and rearranging shows that the change in noncash balance sheet accounts must equal the change in cash in cash flow statement. ∆Cash Assets = - ∆Noncash Assets + ∆Liabilities + ∆Stockholders Equity 375 = -179 + 132+422 Accordingly, if the change in all the noncash accounts on the balance sheet is explained, it will explain the change in cash in cash flow statement. The balance sheet for Mike’s Bike Shop is shown below. It is a new company, so all of the assets, liabilities and equity accounts increased from zero to the amount shown on the balance sheet. Fill in the ∆Cash equation above for Mike’s. Analyzing the change in all the noncash balance sheet items, explains the change in cash. o Notice that as noncash assets increase (decrease), cash decreases (increases). o Notice that as liabilities and equity increase (decrease), cash increases (decreases). Examples: Account - Non-cash Change in Balance Sheet Account Change in Cash Cash Flow Section Purchase land for cash + land Decrease investment Sell investments at book value - investment Increase Investment Pay back principal on loans payable - Liability - decrease financing Issue common stock to investors +increase + increase Financing 8

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Riffe – ACCT 6201 – Session 9 –Fall 2018 Balance Sheet and Income Statement for Mikes Bike Shop. Sales 617 Cost of Goods Sold 228 Gross Profit 389 Wage Expense 18 Rent Expense 77 Depreciation Expense 7 Supplies Expense 10 Operating Profit 277 Interest Income 2 Interest Expense 1 Income Before Tax 278 Tax Expense 8 Net Income 270 Beginnin g Balance Ending Balanc e Change in Acct. Balance s Cash 0 375 375 I Short-term Investments 0 12 12 O Accounts Receivable 0 44 44 O Inventory 0 72 72 O Prepaid Expense 0 7 7 O Supplies 0 14 14 O Interest Receivable 0 2 2 O Total Current Assets 0 526 526 PPE, at cost 0 35 35 I, non-cash transaction paid for truck issuing stock Accumulated Depreciation 0 (7) (7) O PPE, net 0 28 28 Total Assets 0 554 554 Accounts Payable 0 100 100 O Taxes Payable 0 8 8 O Interest Payable 0 1 1 O Wages Payable 0 3 3 O Total Current Liabilities 0 112 112 Notes Payable 0 20 20 F Total Liabilities 0 132 132 Common Stock 0 155 155 F, 35 stock purchase truck, +120 stock issuances Retained Earnings 0 267 267 o/f, net income 270 – div 3 = 267 Total Stockholders’ Equity 0 422 422 Total Liabilities and Stockholders’ Equity 0 554 554 9
Riffe – ACCT 6201 – Session 9 –Fall 2018

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• Fall '09
• Robbins
• Balance Sheet, Generally Accepted Accounting Principles

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