Course pack Accounting 202 Chapter 13: Cash Flow Statement

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1 Course pack Accounting 202 Chapter 13: Cash Flow Statement Value Chapter Included 13 Purpose of Cash Flow Understand Operating, Investing, Financing activities Prepare a Cash Flow Statement indirect only Analyze the Cash Flow Supplemental not in book: Understand Product Life Cycle and relationship to Cash Flow Accounting 202: Reading Questions: Chapter What is the Investing section of the cash flow statement used for? Give an example. 2. What is the Financing section of the cash flow statement used for? Give an example. 3. What does the Operations section of the cash flow statement tell you? 4. Is it possible for a company to be profitable and STILL go out of business due to lack of cash? Explain. 5. What is the purpose of the cash flow statement? 6. In what section and how is deprecation treated on the cash flow statement? Why? 7. What are three examples of non cash items and why are they reported on the cash flow statement? 8. What information/statements are necessary in order to prepare the cash flow statement? 9. How are gains treated on the statement of cash flow? How are losses? 10. What items are found in the activity of the Retained Earnings account and how are they treated on the statement of cash flows? What are the Major Sections of the Cash Flow Report? What are their activities (list as many examples as you can) Major Section Activities

2 Joe's Repair COMPANY INCOME STATEMENT FOR THE YEAR ENDED DEC. 31, 2000 Revenues $ 85,000 Operating Expenses(excluding depreciation) $ 40,000 40,000 Income from Operations 45,000 Less: Income Tax Expense 10,000 Net Income $ 35,000 ITIONAL INFORMATION: During the year: 1) The company declared and paid a cash Dividend of $15,000 2) The equipment wwas purchased at the end of No depreciation was taken in 2000.

3 Joe's Repair COMPANY BALANCE SHEET DEC. 31, 2000 & 1999 CHANGE ASSETS INCREASE/DECREASE CASH $ 34,000 $ - $ 34,000 Increase AR 30,000-30,000 Increase PREPAID EXPENSES - LAND - BUILDING - ACCUM'D DEPRECIATION - BUILDING - EQUIPMENT 10,000-10,000 Increase ACCUM'D DEPRECIATION - EQUIPMENT - TOTAL $ 74,000 $ - LIABILITIES AND STOCKHOLDERS' EQUITY ACCTS. PAYABLE $ 4,000 $ - 4,000 Increase BONDS PAYABLE COMMON STOCK 50,000-50,000 Increase RETAINED EARNINGS 20,000-20,000 Increase TOTAL $ 74,000 $ - Conversion: Net Income to Net Cash Provided by Operating Activities TO DEDUCT NET INCOME FR. NET INCOME CURRENT ASSETS/LIABILITIES ACCOUNTS RECEIVABLE Decrease Increase INVENTORY Decrease Increase PREPAID EXPENSES Decrease Increase ACCOUNTS PAYABLE Increase Decrease ACCRUED EXPENSES PAYABLE Increase Decrease NONCASH CHARGES DEPRECIATION EXPENSE PATENT AMORTIZATION EXPENSE LOSS ON SALE OF ASSET

4 Joe's Repair COMPANY CASH FLOW STATEMENT DEC. 31, 2001 Source CASH FLOW FROM OPERATING ACTIVITIES Document NET INCOME $ 35,000 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH:* (Increase)/Decrease in Accounts Receivable (30,000) Increase/(Decrease) in Accounts Payable 4,000 (26,000) NET CASH PROVIDED BY OPERATING ACTIVITIES 9,000 CASH FLOW FROM INVESTING ACTIVITIES Purchase of Equipment (10,000) NET CASH USED BY INVESTING ACTIVITIES (10,000) CASH FLOW FROM FINANCING ACTIVITIES Issuance of Common Stock 50,000 Payment of cash Dividends (15,000) NET CASH USED BY FINANCING ACTIVITIES 35,000 NET INCREASE IN CASH 34,000 CASH AT THE BEGINNING OF THE PERIOD - CASH AT THE END OF THE PERIOD $ 34,000 NONCASH INVESTING AND FINANCING ACTIVITIES N/A * Necessary to convert from accrual basis to cash basis.

5 COMPUTER SERVICES COMPANY INCOME STATEMENT FOR THE YEAR ENDED DEC. 31, 2011 Revenues $ 507,000 COGS 150,000 Operating Expenses(excluding depreciation) $ 111,000 Depreciation expense 9,000 Loss of sale of equipment 3,000 Interest expense 42, ,000 Income from Operations 192,000 Less: Income Tax Expense 47,000 Net Income $ 145,000 ITIONAL INFORMATION: During the year: 1) The company declared and paid a cash Dividend of $29,000 2) The company obtained land through an issuance of $110,000 bond. 3) An office building costing $120,000 was purchased for cash; equipment costing $25,000 also purchased for cash 4) The company sold equipment with a Book Value of $7,000 (cost $8,000 less Accumulated Depreciation of $1,000) for $4,000 cash. 5) The company issued common stock for $20,000 cash. 6)Depreciation expense was $6,000 for building and $3,000 for equipment. 202 Course Pack Chapter 13 page 5 of 7 IS-CS

6 COMPUTER SERVICES COMPANY BALANCE SHEET DEC. 31, 2011 & 2010 CHANGE ASSETS INCREASE/DECREASE Current Assets CASH $ 55,000 $ 33,000 $ 22,000 Increase Accounts Receivable 20,000 30,000 (10,000) Decrease Inventory 15,000 10,000 5,000 Increase Prepaid Expenses 5,000 1,000 4,000 Increase Property, Plant, Equipment Land 130,000 20, ,000 Increase Building 160,000 40, ,000 Increase Accumulated depreciation - Building (11,000) (5,000) (6,000) Decrease Equipment 27,000 10,000 17,000 Increase Accumulated depreciation - Equipment (3,000) (1,000) (2,000) Decrease TOTAL ASSETS $ 398,000 $ 138,000 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable $ 28,000 $ 12,000 16,000 Increase Income Tax Payable 6,000 8,000 (2,000) Decrease Long-term Liabilities Bonds Payable 130,000 20, ,000 Increase Stockholders' equity COMMON STOCK 70,000 50,000 20,000 Increase RETAINED EARNINGS 164,000 48, ,000 Increase TOTAL $ 398,000 $ 138,000 Conversion: Net Income to Net Cash Provided by Operating Activities TO DEDUCT NET INCOME FR. NET INCOME CURRENT ASSETS/LIABILITIES ACCOUNTS RECEIVABLE Decrease Increase INVENTORY Decrease Increase PREPAID EXPENSES Decrease Increase ACCOUNTS PAYABLE Increase Decrease ACCRUED EXPENSES PAYABLE Increase Decrease NONCASH CHARGES DEPRECIATION EXPENSE PATENT AMORTIZATION EXPENSE LOSSES ON SALE OF ASSET GAINS ON SALE OF ASSET SUBTRACT 202 Course Pack Chapter 13 page 6 of 7 BS-CS

7 Co: CASH FLOW STATEMENT For the period ending: CASH FLOW FROM OPERATING ACTIVITIES NET INCOME *ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH: NET CASH PROVIDED BY OPERATING ACTIVITIES CASH FLOW FROM INVESTING ACTIVITIES NET CASH USED BY INVESTING ACTIVITIES CASH FLOW FROM FINANCING ACTIVITIES NET CASH USED BY FINANCING ACTIVITIES NET INCREASE IN CASH CASH AT THE BEGINNING OF THE PERIOD CASH AT THE END OF THE PERIOD NONCASH INVESTING AND FINANCING ACTIVITIES * Necessary to convert from accrual basis to cash basis.