,C H A P T E R,13,Statement of Cash Flows,Learning Objective 1,Understand the purpose of a statement of cash flows.,What Does The Statement of Cash Flows Do?,Summarizes a companys cash flows for a period of time. Explains how a companys cash was generated and how that cash was used. Complementary to the income statement. Indicates ability of a company to generate income in the future.,Learning Objective 2,Recognize the different types of information reported in the statement of cash flows.,What Are Cash Equivalents?,Short-term, highly liquid investments that can be converted easily into cash. Examples: Treasury Bills Money Market Funds Commercial Paper,The Flow of Cash,Match Classifications of Cash Flows,1.Transactions and events that enter into the determination of net income. 2.Transactions and events that involve the purchase and sale of securities, property, plant, equipment, and other assets not generally held for resale, and the making and collecting of loans. 3.Transactions and events whereby resources are obtained from, or repaid to, owners and creditors.,Operating Activities Financing Activities Investing Activities,Statement of Cash Flows,Cash,Cash Inflows,Operating Activities,Investing Activities,Financing Activities,Cash Outflows,Statement of Cash Flows,Operating Activities,Investing Activities,Financing Activities,Cash Inflow Sale of goods or services Sale of investments in trading securities Interest revenue Dividend revenue,Cash Outflow Inventory payments Interest payments Wages Utilities, rent Taxes,What Items Are Classified as Operating Activities?,Investing Activities,Cash Inflow Sale of plant assets Sale of securities, other than trading securities Collection of principal on loans,Cash Outflow Purchase of plant assets Purchase of securities, other than trading securities Making of loans to other entities,Cash Inflow Issuance of own stock Borrowing,Cash Outflow Dividend payments Repaying principal on borrowing Treasury stock purchase,Financing Activities,Define Noncash Items,Noncash items are items included in the determination of net income on an accrual basis that do not affect cash; examples are depreciation and amortization.,Learning Objective 3,Prepare a simple statement of cash flows.,What is the Format of the Statement of Cash Flows?,A Simple Example,A Simple Example,1. Sales on account, $1,300 2. Collections on account, $1,800 3. Paid accounts payable, $1,000 4. Paid long-term debt, $100 5. Issued stock at par value, $200 6. Paid interest on debt, $50 7. Sold equipment, $100 (original cost, $250, accumulated depreciation, $225),The following transactions were conducted by Red Bull Corp during 2003:,Record the appropriate journal entries.,A Simple Example,A Simple Example,STATEMENT OF CASH FLOWS Operating activities: Collections on account. . . . . . . . . . . . . $ 1,800 Payment of accounts payable . . . . . . . $1,000 Payment for interest . . . . . . . . . . . . . . . 50 (1,050) Cash flows from operating activities. . . $ 750 Investing activities: Sold equipment. . . . . . . . . . . . . . . . . . . $ 100 Cash flows from investing activities . . . 100 Financing activities: Issued stock . . . . . . . . . . . . . . . . . . . . . $ 200 Repayment of debt . . . . . . . . . . . . . . . . (100) Cash flows from financing activities . . . 100,A Simple Example,A Simple Example,Statement of Cash Flows (continued) Net increase in cash. . . . . . . . . . . . . . . . $ 950 Beginning cash balance. . . . . . . . . . . . . 500 Ending cash balance . . . . . . . . . . . . . . . $1,450,Learning Objective 4,Analyze financial statements to prepare a statement of cash flows.,6-Step Process for Preparing a Statement of Cash Flows,Compute the change in the cash and cash-equivalent accounts for the period of the statement. Convert the income statement from an accrual-basis to a cash-basis summary of operations. Analyze the long-term assets to identify the cash flow effects of investing activities. Analyze the long-term debt and stockholders equity accounts to determine the cash flow effects of any financing transactions. Prepare a formal statement of cash flows by classifying all cash inflows and outflows according to operating, investing, and financing activities. Report any significant investing or financing transactions that did not involve cash in a narrative or in a separate schedule.,Example: Change in Cash,Red Bull Corporation Beginning cash balance. . . . . . . . . . . . . $ 500 Ending cash balance . . . . . . . . . . . . . . . 1,450 Net increase in cash. . . . . . . . . . . . . . . . $ 950,Cash Flow StatementsMatch,A method of reporting net cash flows from operations that shows the major classes of cash receipts and payments for a period of time. A method of reporting net cash flows from operations that involves converting accrual-basis net income to a cash basis.,6-Step Process for Preparing a Statement of Cash Flows,Compute the change