Kế toán doanh nghiệp - Chapter 21: The statement of cash flows revisited

The Statement of Cash Flows RevisitedChapter 21Cash Inflows and OutflowsInvesting ActivitiesOperating ActivitiesFinancing ActivitiesSale of operational assetsSale of investmentsCollections of loansCash received from revenuesIssuance of stockIssuance of bonds and notesCash InflowsBusinessCash OutflowsPurchase of operational assetsPurchase of investmentsLoans to othersCash paid for expensesPayment of dividendsRepurchase of stockRepayment of debtRole of the Statement of Cash FlowsLists all cash inflows and all cash outflows by category: operating, investing, and financingExplains the change in cash during the periodRequired by GAAPCash is King!Especially during an economic downturn.Cash and Cash EquivalentsShort-term, highly liquid investments.Readily converted into cash, with little or no risk of loss. Examples: money market funds Treasury billsMaturity date must not be longer than 3 months from date of purchase.Resources immediately available to pay obligations.Operating ActivitiesInvesting ActivitiesFinancing ActivitiesReconciliation of the Net Increase or Decrease in Cash with the Change in the Balance of the Cash AccountNoncash Investing and Financing ActivitiesPrimary Elements of the Statement of Cash FlowsCash Flows from Operating ActivitiesCash Flows from Operating Activities+Inflows from:customers.interest and dividends._Outflows to:suppliers of goods.salaries and wages.interest on debt.income taxes.Direct Method or Indirect Method of Reporting Cash Flows from Operating ActivitiesReports the cash effects of each operating activityDirect MethodStarts with accrual net income and converts to cash basisIndirect MethodTwo Formats for Reporting Operating ActivitiesNote that no matter which format is used, the same amount of net cash flows from operating activities is generated.Cash Flows from Investing Activities+Cash Flows from Investing ActivitiesInflows from:Sale of long-term assets used in the business.Sale of investment securities (stocks and bonds).Collection of nontrade receivables._Outflows to:Purchase of long-term assets used in the business.Purchase of investment securities (stocks and bonds).Create nontrade receivables.Cash Flows from Financing ActivitiesInflows from:Sale of shares to owners.Borrowing from creditors through notes, loans, mortgages, and bonds.Cash Flows from Financing Activities+_Outflows to:Owners in the form of dividends or other distributions.Owners for the reacquisition of shares previously sold.Creditors as repayment of the principal amounts of debt.U.S. GAAP and IFRSThe FASB and IASB are working together on a project, Financial Statement Presentation, to establish a common standard for presenting information in the financial statements.U.S. GAAP and IFRSBased on the joint FASB and IASB Financial Statement Presentation project, the statement of cash flows is slated to change in several ways.Operating and Investing cash flows would be categorized as “Business” activities and some cash flows may switch categories.The statement would have three additional groupings: income taxes, discontinued operations, and equity (if needed).Direct method would be required.The concept of “cash equivalents” would be eliminated in favor of cash only.Preparation of the Statement of Cash FlowsA spreadsheet can be used to ensure that no reportable activities are inadvertently overlooked. Reconstructing the events and transactions that occurred during the period helps identify the operating, investing, and financing activities to be reported. U.S. GAAP vs. IFRSOperating ActivitiesDividends ReceivedInterest ReceivedInterest PaidInvesting ActivitiesFinancing ActivitiesDividends PaidOperating ActivitiesInvesting ActivitiesDividends ReceivedInterest ReceivedFinancing ActivitiesDividends PaidInterest PaidTypical Classification of Interest and DividendsConsistent with U.S. GAAP, cash flows are classified as operating, investing, or financing. Components of Net Income That Do Not Increase or Decrease CashDepreciation ExpenseLoss on Sale of EquipmentAdding these items back to net income restores net income to what it would have been had depreciation and the loss not been subtracted at all.Subtracting the gain reverses the effect of the gain having been added to net income. Gain on Sale of LandEnd of Chapter 21