Financial Accounting: Statement of Cash Flows
Financial Accounting: Statement of Cash Flows
Cash Flows
FINANCIAL
ACCOUNTING
PowerPoint Presentation by
2ND EDITION
Gail B. Wright
Professor of Accounting
BY Bryant University
1
LG 1
CASH
CASH FLOW
FLOW STATEMENT
STATEMENT
•• 33 sections
sections reporting
reporting cash
cash flows
flows
from
from different
different activities
activities
–– Cash
Cash flows
flows from
from operating
operating activities
activities
–– Cash
Cash flows
flows from
from investing
investing activities
activities
–– Cash
Cash flows
flows from
from financing
financing activities
activities
2
LG 1
CASH
CASH FLOWS:
FLOWS: Operating
Operating Activities
Activities
3
LG 1
CASH
CASH FLOWS:
FLOWS: Investing
Investing Activities
Activities
•• Cash
Cash inflows
inflows from
from investing
investing activities
activities arise
arise
from
from
–– Selling
Selling fixed
fixed assets,
assets, investments,
investments,intangible
intangible
assets
assets
•• Cash
Cash outflows
outflows from
from investing
investing activities
activities
arise
arise from
from
–– Buying
Buying fixed
fixed assets,
assets, investments,
investments, intangible
intangible
assets
assets
4
LG 1
CASH
CASH FLOWS:
FLOWS: Financing
Financing Activities
Activities
•• Cash
Cash inflows
inflows from
from financing
financing activities
activities arise
arise
from
from
–– Issuing
Issuing debt,
debt, equity
equity securities
securities
•• Cash
Cash outflows
outflows from
from financing
financing activities
activities
arise
arise from
from
–– (Re)Paying
(Re)Paying dividends,
dividends, debt,
debt, purchasing
purchasing
treasury
treasury stock
stock
5
LG 1
EXERCISE
EXERCISE 13-3a
13-3a
Identify cash flow from operating activity.
EXERCISE
EXERCISE 13-3b
13-3b
Identify cash flow from investing activity.
EXERCISE
EXERCISE 13-3c
13-3c
Identify cash flow from financing activity.
NONCASH
NONCASH ACTIVITIES
ACTIVITIES
9
LG 3
CASH
CASH FLOWS:
FLOWS: Direct
Direct Method
Method
•• Direct
Direct method
method
–– Reports
Reports operating
operating cash
cash flows
flows as
as sources,
sources, uses
uses
of
of cash
cash
–– Adjusts
Adjusts certain
certain income
income statement
statement items
items for
for
changes
changes in
in current
current assets,
assets, liabilities
liabilities
10
LG 3
EXHIBIT 7
Rundell, Inc. current accounts used for Operating
cash flow under direct method
Continued
11
LG 3
EXHIBIT 7
Rundell, Inc. income statement items used for
Operating cash flow under direct method
12
LG 3
DIRECT
DIRECT METHOD:
METHOD:
Cash
Cash Received
Received from
from Customers
Customers
13
LG 3
DIRECT
DIRECT METHOD:
METHOD:
Cash
Cash Paid
Paid for
for Inventory
Inventory
14
LG 3
DIRECT
DIRECT METHOD:
METHOD:
Cash
Cash Paid
Paid for
for Operating
Operating Expenses
Expenses
15
LG 3
DIRECT
DIRECT METHOD:
METHOD:
Cash
Cash Paid
Paid for
for Income
Income Tax
Tax
16
LG 3
EXHIBIT 8
17
LG 4
CASH
CASH CONVERSION
CONVERSION CYCLE
CYCLE
18
LG 4
CASH
CASH CONVERSION
CONVERSION CYCLE:
CYCLE:
Equation
Equation
-
Days’ sales in A/P = Ave. A/P / Ave CGM
19
LG 4
CASH
CASH CONVERSION
CONVERSION CYCLE:
CYCLE:
Calculation
Calculation
Apple Dell
# Days’ Sales
Receivables 34 30
Inventory 5 4
Accounts Payable <79> <74>
Conversion Cycle <40>
?
20
LG 4
ANALYSIS:
ANALYSIS: Cash
Cash Conversion
Conversion Cycle
Cycle
•• The
The more
more positive
positive the
the conversion
conversion cycle,
cycle, the
the
less
less efficient
efficient the
the operations
operations
–– Reduces
Reduces amount
amount of of noncash
noncash current
current assets
assets
–– Increases
Increases level
level of
of current
current liabilities
liabilities
–– Releases
Releases cash
cash for
for other
other purposes
purposes
•• Negative
Negative cycles
cycles indicate
indicate highly
highly efficient
efficient use
use
noncash
noncash working
working capital
capital
21
Inspiration of the Day
"To do carefully and constantly and
kindly many little things is not a little
thing"
- Author Unknown
22