STATEMENT OF CASH FLOWS CHAPTER 12 Adapted by

STATEMENT OF CASH FLOWS CHAPTER 12 Adapted by Cynthia Fortin, CPA, CMA Introduction to Managerial Accounting, Brewer, Garrison, Noreen Power. Point Authors: Susan Coomer Galbreath, Ph. D. , CPA Charles W. Caldwell, D. B. A. , CMA Jon A. Booker, Ph. D. , CPA, CIA Cynthia J. Rooney, Ph. D. , CPA Mc. Graw-Hill/Irwin Copyright © 2013 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

12 -2 This chapter explains how to prepare and interpret the statement of cash flows 12 -2

12 -3 Where did the cash go? Warm up exercise 1 to 10 12 -3

12 -4 Statement of Cash Flows Ongoing operations Investments Financing Can we pay debts? Can we keep investing? Can we pay dividends? 12 -4

12 -5 Operating Activities Direct Method Indirect Method cash collected and cash paid Adjusted net income to cash instead of accrual basis Used by 99% of companies 12 -5

12 -6 First I like to start with calculating the change in Cash from period to period. Because I know that the total changes of Operating + Investing + Financing must equal the change in cash period to period. I know where I’m heading! 12 -6

12 -7 Operating Activities Indirect Method Step 1 Net Income + Depreciation* *Change in Accumulation depreciation ending balance plus accumulated depreciation debited as a result of disposals. 12 -7

12 -8 Operating Activities Indirect Method Step 2 Analyze changes Noncash Current Assets & Liabilities 12 -8

12 -9 Let’s review the activities 12 -9

12 -10 Operating Activities Indirect Method Step 3 Adjust - Gains or + Losses Under U. S. GAAP and IFRS rules, proceeds of asset disposals must be included in the investing activities. Under Operating activities substract gains and/or add losses of such asset disposals. 12 -10

12 -11 Let’s look at an example Day 2 Cash flow example Apparel. xlsx 12 -11

12 -12 cash ins and cash outs Operating: related to revenue and expense affecting net income. Investing: related to acquiring or disposing of noncurrent assets Financing: related to borrowing and repaying principal and activities with the stockholders Change in cash balance 12 -12

12 -13 Summary of Key Concepts 12 -13

12 -19 Interpreting the Statement of Cash Flows Within company’s context • Start-up • Comparing operating CF to sales • Comparing operating CF to current liabilities 12 -19

12 -20 Free Cash Flows Ability to fund Capital expenditures and Pay dividends With Operating net cash 12 -20

12 -21 Free Cash Flows 12 -21