Chapter

5-1
Balance Sheet and
Balance Sheet and
Statement of Cash Flows
Statement of Cash Flows
Balance Sheet and
Balance Sheet and
Statement of Cash Flows
Statement of Cash Flows
Chapter
Chapter
5
5
Intermediate Accounting
12th Edition
Kieso, Weygandt, and Warfield
Prepared by Coby Harmon, University of California, Santa Barbara
Chapter
5-2
1. 1.
Explain the uses and limitations of a balance sheet.
Explain the uses and limitations of a balance sheet.
. .
!dentify the ma"or classifications of the balance sheet.
!dentify the ma"or classifications of the balance sheet.
#. #.
Prepare a classified balance sheet usin$ the report and
Prepare a classified balance sheet usin$ the report and
account formats.
account formats.
%. %.
&etermine 'hich balance sheet information re(uires
&etermine 'hich balance sheet information re(uires
supplemental disclosure.
supplemental disclosure.
). ).
&escribe the ma"or disclosure techni(ues for the balance
&escribe the ma"or disclosure techni(ues for the balance
sheet.
sheet.
*. *.
!ndicate the purpose of the statement of cash flo's.
!ndicate the purpose of the statement of cash flo's.
+. +.
!dentify the content of the statement of cash flo's.
!dentify the content of the statement of cash flo's.
,. ,.
Prepare a statement of cash flo's.
Prepare a statement of cash flo's.
-. -.
Understand the usefulness of the statement of cash
Understand the usefulness of the statement of cash
flo's.
flo's.
Learning Objectives
Learning Objectives
Learning Objectives
Learning Objectives
Chapter
5-3
Balance Balance
Sheet Sheet
Statement of Statement of
Cash Flows Cash Flows
Purpose Purpose
Content and Content and
format format
Preparation Preparation
Usefulness Usefulness
Balance Sheet and Statement of Cash Flows
Balance Sheet and Statement of Cash Flows
Balance Sheet and Statement of Cash Flows
Balance Sheet and Statement of Cash Flows
Usefulness Usefulness
Limitations Limitations
Classification Classification
Additional Additional
information information
reported reported
Techniques of Techniques of
disclosure disclosure
Chapter
5-4
Evaluatin$ the capital structure.
.ssess ris/ and future cash flo's.
.naly0e the company1s2

3i(uidity,

Solvency, and

4inancial flexibility.
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
Usefulness of the Balance Sheet
LO 1 !plain the uses and limitations of a balance sheet" LO 1 !plain the uses and limitations of a balance sheet"
Chapter
5-5
5ost assets and liabilities are reported at
historical cost.
Use of "ud$ments and estimates.
5any items of financial value are omitted.
Limitations of the Balance Sheet
LO 1 Understand the uses and limitations of an income statement" LO 1 Understand the uses and limitations of an income statement"
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
Chapter
5-6
6hree 7eneral Classifications
.ssets, 3iabilities, and Stoc/holders1 E(uity
Companies further divide these classifications2
Classification in the Balance Sheet
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
!llustration )81 !llustration )81
Balance Sheet
Classification
Chapter
5-7
Cash and other assets a company expects to
convert into cash, sell, or consume either in one
year or in the operatin$ cycle, 'hichever is lon$er.
Current &ssets
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
!llustration )8 !llustration )8
.ccounts and
basis of valuation
Chapter
5-8
'eview
'eview
6he correct order to present current assets is
6he correct order to present current assets is


a.
a.
Cash, accounts receivable, prepaid items,
Cash, accounts receivable, prepaid items,
inventories.
inventories.


b.
b.
Cash, accounts receivable, inventories, prepaid
Cash, accounts receivable, inventories, prepaid
items.
items.


c.
c.
Cash, inventories, accounts receivable, prepaid
Cash, inventories, accounts receivable, prepaid
items.
items.


d.
d.
Cash, inventories, prepaid items, accounts
Cash, inventories, prepaid items, accounts
receivable.
receivable.
LO ( !plain how to report other comprehensive income" LO ( !plain how to report other comprehensive income"
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
Chapter
5-9
7enerally any monies available 9on demand.:
Cash e)uivalents are short8term hi$hly li(uid
investments that 'ill mature 'ithin three
months or less.
.ny restrictions or commitments must be
disclosed.
Cash
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
!llustration )8# !llustration )8#
Chapter
5-10
-ortfolios
Short./erm $nvestments
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
/%pe 0aluation Classification
Held8to8
5aturity
&ebt
.morti0ed
Cost
Current or
;oncurrent
6radin$ &ebt or E(uity 4air <alue Current
.vailable8
for8Sale
&ebt or E(uity 4air <alue
Current or
;oncurrent
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Chapter
5-11
Claims held a$ainst customers and others for
money, $oods, or services.
.ccounts receivable = oral promises
;otes receivable = 'ritten promises
5a"or cate$ories of receivables should be sho'n in
the balance sheet or the related notes.
'eceivables
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Chapter
5-12
&ccounts 'eceivable * -resentation Options
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Current .ssets2 Current .ssets2
Cash Cash > #%* > #%*
.ccounts receivable .ccounts receivable )?? )??
3ess allo'ance for doubtful accounts 3ess allo'ance for doubtful accounts ) ) %+) %+)
!nventory !nventory ,1 ,1
6otal current assets 6otal current assets >1,*## >1,*##
Current .ssets2 Current .ssets2
Cash Cash > #%* > #%*
.ccounts receivable, .ccounts receivable, net of >) allo'ance net of >) allo'ance %+) %+)
!nventory !nventory ,1 ,1
6otal current assets 6otal current assets >1,*## >1,*##
1
1
2
2
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Chapter
5-13
Company discloses2
basis of valuation @e.$., lo'er8of8cost8or8
mar/etA and
the method of pricin$ @e.$., 4!4B or 3!4BA.
$nventories
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Chapter
5-14
Payment of cash, that is recorded as an asset because
Payment of cash, that is recorded as an asset because
service or benefit 'ill be received in the future.
service or benefit 'ill be received in the future.
insurance
insurance
supplies
supplies
advertisin$
advertisin$
Cash Payment Cash Payment Expense Cecorded Expense Cecorded BFO'
rent
rent
maintenance on e(uipment
maintenance on e(uipment
Prepayments often occur in re$ard to2
Prepayments often occur in re$ard to2
-repaid !penses
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Balance Sheet * +Current &ssets,
Chapter
5-15
1enerall% consists of four t%pes2
Securities
Securities
Fi!ed assets
Fi!ed assets
Special funds
Special funds
3onconsolidated subsidiaries
3onconsolidated subsidiaries or
affiliated companies.
Long./erm $nvestments
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Chapter
5-16
Long./erm
$nvestments
Securities
Securities
Securities
Securities
$nvestments2
!nvesment in .BC bonds #1,*)+
!nvestment in UC !nc. )#,-,?
;otes receivable 1)?,???
3and held for speculation ))?,???
Sin/in$ fund ),???
Pension fund *)#,+-,
Cash surrender value ,%,#1
!nvestment in Uncon. Sub. %)+,,#*
6otal investments ,*-*,)-
-ropert%4 -lant4 and )uip"
Buildin$ 1,#+),++,
3and -+),???
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
bonds,
stoc/, and
lon$8term notes
4or mar/etable securities,
mana$ement1s intent
determines current or
noncurrent classification.
Balance Sheet @in thousandsA
Current assets
Cash ,),??? >
Chapter
5-17
Fi!ed &ssets
Fi!ed &ssets
Fi!ed &ssets
Fi!ed &ssets
$nvestments2
!nvesment in .BC bonds #1,*)+
!nvestment in UC !nc. )#,-,?
;otes receivable 1)?,???
3and held for speculation ))?,???
Sin/in$ fund ),???
Pension fund *)#,+-,
Cash surrender value ,%,#1
!nvestment in Uncon. Sub. %)+,,#*
6otal investments ,*-*,)-
-ropert%4 -lant4 and )uip"
Buildin$ 1,#+),++,
3and -+),???
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
3and held for
speculation
Long./erm
$nvestments
Balance Sheet @in thousandsA
Current assets
Cash ,),??? >
Chapter
5-18
Special Funds
Special Funds
Special Funds
Special Funds
$nvestments2
!nvesment in .BC bonds #1,*)+
!nvestment in UC !nc. )#,-,?
;otes receivable 1)?,???
3and held for speculation ))?,???
Sin/in$ fund ),???
Pension fund *)#,+-,
Cash surrender value ,%,#1
!nvestment in Uncon. Sub. %)+,,#*
6otal investments ,*-*,)-
-ropert%4 -lant4 and )uip"
Buildin$ 1,#+),++,
3and -+),???
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Sin/in$ fund
Pensions fund
Cash surrender
value of life
insurance
Long./erm
$nvestments
Balance Sheet @in thousandsA
Current assets
Cash ,),??? >
Chapter
5-19
3onconsolidated
3onconsolidated
Subsidiaries or
Subsidiaries or
&ffiliated
&ffiliated
Companies
Companies
3onconsolidated
3onconsolidated
Subsidiaries or
Subsidiaries or
&ffiliated
&ffiliated
Companies
Companies
$nvestments2
!nvesment in .BC bonds #1,*)+
!nvestment in UC !nc. )#,-,?
;otes receivable 1)?,???
3and held for speculation ))?,???
Sin/in$ fund ),???
Pension fund *)#,+-,
Cash surrender value ,%,#1
!nvestment in Uncon. Sub. %)+,,#*
6otal investments ,*-*,)-
-ropert%4 -lant4 and )uip"
Buildin$ 1,#+),++,
3and -+),???
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Long./erm
$nvestments
Balance Sheet @in thousandsA
Current assets
Cash ,),??? >
Chapter
5-20
-ropert%4 -lant4 and
)uipment
6otal investments ,*-*,)-
-ropert%4 -lant4 and )uip"
Buildin$ 1,#+),++,
3and -+),???
5achinery and e(uipment #%,-),
Capital leases #,%,*)?
3easehold improvements 1+),???
.ccumulated depreciation @-+),???A
6otal PPDE ,1+?,#,*
$ntangibles
7ood'ill #,???,???
Patents 1++,???
6rademar/s %?,???
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
&ssets of a durable
nature used in the
regular operations
of the business"
Balance Sheet @in thousandsA
Current assets
Cash ,),??? >
Chapter
5-21
$ntangibles
.ccumulated depreciation @-+),???A
6otal PPDE ,1+?,#,*
$ntangibles
7ood'ill ,???,???
Patents 1++,???
6rademar/ %?,???
4ranchises 1),???
Copyri$ht )),???
6otal intan$ibles ,#-+,???
Other assets
Prepaid pension costs 1##,???
&eferred income tax %?,???
6otal other 1+#,???
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Lac5 ph%sical
substance and are not
financial instruments"
Limited life
intangibles amorti6ed"
$ndefinite.life
intangibles tested for
impairment"
Balance Sheet @in thousandsA
Current assets
Cash ,),??? >
Chapter
5-22 LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet * +!ercise,
Balance Sheet * +!ercise,
Balance Sheet * +!ercise,
Balance Sheet * +!ercise,
B5.7 5ic/ey Snyder Corporation1s ad"usted trial balance
contained the follo'in$ asset accounts at &ecember #1, ??+2
Prepaid Cent >1,???E 7ood'ill >%?,???E 4ranchise 4ees
Ceceivable >,???E 4ranchises >%+,???E Patents >##,???E
6rademar/s >1?,???. Prepare the intan$ible assets section of the
balance sheet.
$ntangibles
7ood'ill > %?,???
4ranchises %+,???
Patents ##,???
6rademar/s 1?,???
6otal >1#?,???
Chapter
5-23
Other &ssets
$ntangibles
7ood'ill ,???,???
Patents 1++,???
6rademar/ %?,???
4ranchises 1),???
Copyri$ht )),???
6otal intan$ibles ,#-+,???
Other assets
Prepaid pension costs 1##,???
&eferred income tax %?,???
6otal other 1+#,???
/otal &ssets -,1?,-+, >
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
Balance Sheet * +3oncurrent &ssets,
/his section should
include onl% unusual
items sufficientl%
different from assets
in the other
categories"
Balance Sheet @in thousandsA
Current assets
Cash ,),??? >
Chapter
5-24
+Obligations that a
compan% reasonabl%
e!pects to li)uidate
either through the use
of current assets or the
creation of other
current liabilities",
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
Current Liabilities
Balance Sheet @in thousandsA
Current liabilities
;otes payable ##,%)? >
.ccounts payable 1#1,,??
.ccrued compensation %#,???
Unearned revenue 1+,???
!ncome tax payable #,%??
Current maturities 36 debt 11,???
6otal current liabilities )*-,*)?
Long.term liabilities
3on$8term debt -+-,)??
Bbli$ations capital lease #%),,??
&eferred income taxes ++,-?-
6otal lon$8term liabilities ,?-#,,)-
Stoc5holders8 e)uit%
Chapter
5-25
+Obligations that a
compan% does not
reasonabl% e!pect to
li)uidate within the
normal operating c%cle",
&ll covenants and
restrictions must be
disclosed"
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet @in thousandsA
Current liabilities
;otes payable ##,%)? >
.ccounts payable 1#1,,??
.ccrued compensation %#,???
Unearned revenue 1+,???
!ncome tax payable #,%??
Current maturities 36 debt 11,???
6otal current liabilities )*-,*)?
Long.term liabilities
3on$8term debt -+-,)??
Bbli$ations capital lease #%),,??
&eferred income taxes ++,-?-
6otal lon$8term liabilities ,?-#,,)-
Stoc5holders8 e)uit%
Long./erm Liabilities
Chapter
5-26 LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet * +!ercise,
Balance Sheet * +!ercise,
Balance Sheet * +!ercise,
Balance Sheet * +!ercise,
B5.9 !ncluded in E'in$ Company1s &ecember #1, ??+, trial
balance are the follo'in$ accounts2 .ccounts Payable >%?,???E
Pension 3iability >#+),???E &iscount on Bonds Payable >%,???E
.dvances from Customers >%1,???E Bonds Payable >%??,???E
Fa$es Payable >+,???E !nterest Payable >1,???E !ncome 6axes
Payable >-,???. Prepare the lon$8term liabilities section of the
balance sheet.
Long.term liabilities
Pension liability >#+),???
Bonds payable %??,???
&iscount on bonds payable @%,???A
6otal +)1,???
Chapter
5-27
Companies usuall% divide e)uit% into three parts4
:1; Capital Stoc54 :#; &dditional -aid.$n Capital4
and :<; 'etained arnings"
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
Owners= )uit%
!llustration )81) !llustration )81)
Chapter
5-28
@aA !nvestment in preferred stoc/
LO # $dentif% the major classifications of the balance sheet" LO # $dentif% the major classifications of the balance sheet"
Balance Sheet Classification !ercise
Balance Sheet Classification !ercise
Balance Sheet Classification !ercise
Balance Sheet Classification !ercise
&ccount
@bA 6reasury stoc/
@cA Common stoc/
@dA Cash dividends payable
@eA .ccumulated depreciation
@fA !nterest payable
@$A &eficit
@hA 6radin$ securities
@iA Unearned revenue
@aA Current assetG!nvestment
@bA E(uity
@cA E(uity
@dA Current liability
@eA Contra8asset
@fA Current liability
@$A E(uity
@hA Current asset
@iA Current liability
Classification
Chapter
5-29
Classified Balance Sheet
&ccount form
&ccount form
'eport form
'eport form
Balance Sheet . Format
Balance Sheet . Format
Balance Sheet . Format
Balance Sheet . Format
&ccounting /rends and /echni)uesH??% @;e' Ior/2
.!CP.A indicates that all of the *?? companies surveyed
use either the 9report form: @)?*A or the 9account
form: @-%A, sometimes collectively referred to as the
9customary form.:
LO < -repare a classified balance sheet using the report and account formats" LO < -repare a classified balance sheet using the report and account formats"
Chapter
5-30
Contingencies
&ccounting -olicies
Contractual Situations
Fair 0alues
&dditional $nformation 'eported
&dditional $nformation 'eported
&dditional $nformation 'eported
&dditional $nformation 'eported
/here are normall% four t%pes of
information that are supplemental to
account titles and amounts presented in
the balance sheet2
LO > ?etermine which balance sheet information LO > ?etermine which balance sheet information
re)uires supplemental disclosure" re)uires supplemental disclosure"
Chapter
5-31
-arenthetical !planations
3otes
Cross.'eference and Contra $tems
Supporting Schedules
/erminolog%
/echni)ues of ?isclosure
/echni)ues of ?isclosure
/echni)ues of ?isclosure
/echni)ues of ?isclosure
LO 5 ?escribe the major disclosure techni)ues for the balance sheet" LO 5 ?escribe the major disclosure techni)ues for the balance sheet"
Chapter
5-32
/he Statement of Cash Flows
/he Statement of Cash Flows
/he Statement of Cash Flows
/he Statement of Cash Flows
LO 7 $ndicate the purpose of the statement of cash flows" LO 7 $ndicate the purpose of the statement of cash flows"
Bne of the three basic ob"ectives of financial
reportin$ is
+assessing the amounts4 timing4 and
uncertaint% of cash flows",
Chapter
5-33
6o provide relevant information about the cash
receipts and cash payments of an enterprise durin$
a period.
6he statement provides ans'ers to the follo'in$
(uestions2
1. Fhere did the cash come fromJ
. Fhat 'as the cash used forJ
#. Fhat 'as the chan$e in the cash balanceJ
-urpose of the Statement
/he Statement of Cash Flows
/he Statement of Cash Flows
/he Statement of Cash Flows
/he Statement of Cash Flows
LO 7 $ndicate the purpose of the statement of cash flows" LO 7 $ndicate the purpose of the statement of cash flows"
Chapter
5-34
6hree different activities2
Bperatin$,
Content and Format
/he Statement of Cash Flows
/he Statement of Cash Flows
/he Statement of Cash Flows
/he Statement of Cash Flows
LO @ $dentif% the content of the statement of cash flows" LO @ $dentif% the content of the statement of cash flows"
!nvestin$, 4inancin$
!llustration )8% !llustration )8%
Chapter
5-35
Content and Format
/he Statement of Cash Flows
/he Statement of Cash Flows
/he Statement of Cash Flows
/he Statement of Cash Flows
Operating
Operating
Operating
Operating
Cash inflo's
and outflo's
from
operations.
$nvesting
$nvesting
$nvesting
$nvesting
Cash inflo's
and outflo's
from
non8current
assets.
Financing
Financing
Financing
Financing
Cash inflo's
and outflo's
from
non8current
liabilities and
e(uity.
6he statement1s value is that it helps users evaluate
li(uidity, solvency, and financial flexibility.
6he statement1s value is that it helps users evaluate
li(uidity, solvency, and financial flexibility.
LO @ $dentif% the content of the statement of cash flows" LO @ $dentif% the content of the statement of cash flows"
Chapter
5-36
!nformation obtained from several sources2
:1; comparative balance sheets,
:#; the current income statement, and
:<; selected transaction data.
-reparation
/he Statement of Cash Flows
/he Statement of Cash Flows
/he Statement of Cash Flows
/he Statement of Cash Flows
LO ( -repare a statement of cash flows" LO ( -repare a statement of cash flows"
Chapter
5-37
-reparation
/he Statement of Cash Flows
/he Statement of Cash Flows
/he Statement of Cash Flows
/he Statement of Cash Flows
LO ( -repare a statement of cash flows" LO ( -repare a statement of cash flows"
BE )81 5id'est Bevera$e Company reported the
follo'in$ items in the most recent year.
.ctivity
Operating
Financing
Operating
Operating
$nvesting
Operating
Financing
'e)uired2 Prepare a Statement of Cash 4lo's
Chapter
5-38
-reparation
Statement of Cash Flow @in thousandsA
Operating activities
;et income %?,??? >
!ncrease in accounts receivable @1?,???A
!ncrease in accounts payable ),???
&epreciation expense %?,???
Cash flo' from operations +),???
$nvesting activities
Purchase of e(uipment @,,???A
Financing activities
Proceeds from notes payable ?,???
&ividends paid @),???A
Cash flo' from financin$ 1),???
$ncrease in cash ,,??? >
/he Statement of Cash Flows
/he Statement of Cash Flows
/he Statement of Cash Flows
/he Statement of Cash Flows
LO ( -repare a statement of cash flows" LO ( -repare a statement of cash flows"
;oncash credit to
revenues.
;oncash char$e to
expenses.
Chapter
5-39
'eview
'eview
!n preparin$ a statement of cash flo's, 'hich of the
!n preparin$ a statement of cash flo's, 'hich of the
follo'in$ transactions 'ould be considered an investin$
follo'in$ transactions 'ould be considered an investin$
activityJ
activityJ


a.
a.
Sale of e(uipment at boo/ value
Sale of e(uipment at boo/ value


b.
b.
Sale of merchandise on credit
Sale of merchandise on credit


c.
c.
&eclaration of a cash dividend
&eclaration of a cash dividend


d.
d.
!ssuance of bonds payable at a discount
!ssuance of bonds payable at a discount
receivable.
receivable.
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
LO ( -repare a statement of cash flows" LO ( -repare a statement of cash flows"
Chapter
5-40
!ssuance of common stoc/ to purchase assets.
Conversion of bonds into common stoc/.
!ssuance of debt to purchase assets.
Exchan$es on lon$8lived assets.
&dditional $nformation 'eported
&dditional $nformation 'eported
&dditional $nformation 'eported
&dditional $nformation 'eported
Si$nificant financin$ and investin$ activities
that do not affect cash are reported in either a
separate schedule at the bottom of the
statement of cash flo's or in the notes.
Examples include2
LO ( -repare a statement of cash flows" LO ( -repare a statement of cash flows"
Chapter
5-41
Aigh amount 8 company able to $enerate
sufficient cash to pay its bills.
Low amount 8 company may have to borro' or
issue e(uity securities to pay bills.
Usefulness of the Statement of Cash Flows
Usefulness of the Statement of Cash Flows
Usefulness of the Statement of Cash Flows
Usefulness of the Statement of Cash Flows
Fithout cash, a company 'ill not survive.
Cash flo' from Bperations2
LO 9 Understand the usefulness of the statement of cash flows" LO 9 Understand the usefulness of the statement of cash flows"
Chapter
5-42
Usefulness of the Statement of Cash Flows
Usefulness of the Statement of Cash Flows
Usefulness of the Statement of Cash Flows
Usefulness of the Statement of Cash Flows
Catio indicates 'hether the company can pay off its
current liabilities from its operations. . ratio near
121 is $ood.
LO 9 Understand the usefulness of the statement of cash flows" LO 9 Understand the usefulness of the statement of cash flows"
Financial Li)uidit%
;et Cash Provided by
Bperatin$ .ctivities
.vera$e Current 3iabilities
Current Cash
?ebt Coverage
'atio
K
Chapter
5-43
Usefulness of the Statement of Cash Flows
Usefulness of the Statement of Cash Flows
Usefulness of the Statement of Cash Flows
Usefulness of the Statement of Cash Flows
6his ratio indicates a company1s ability to repay its
liabilities from net cash provided by operatin$
activities, 'ithout havin$ to li(uidate the assets
employed in its operations.
LO 9 Understand the usefulness of the statement of cash flows" LO 9 Understand the usefulness of the statement of cash flows"
Financial Fle!ibilit%
;et Cash Provided by
Bperatin$ .ctivities
.vera$e 6otal 3iabilities
Cash ?ebt
Coverage
'atio
K
Chapter
5-44
Usefulness of the Statement of Cash Flows
Usefulness of the Statement of Cash Flows
Usefulness of the Statement of Cash Flows
Usefulness of the Statement of Cash Flows
6he amount of discretionary cash flo' a company has
for purchasin$ additional investments, retirin$ its
debt, purchasin$ treasury stoc/, or simply addin$ to
its li(uidity.
LO 9 Understand the usefulness of the statement of cash flows" LO 9 Understand the usefulness of the statement of cash flows"
Free Cash Flow
!llustration )8#% !llustration )8#%
Chapter
5-45
'eview
'eview
6he current cash debt covera$e ratio is often used to
6he current cash debt covera$e ratio is often used to
assess
assess


a. financial flexibility.
a. financial flexibility.


b. li(uidity.
b. li(uidity.


c. profitability.
c. profitability.


d. solvency.
d. solvency.
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
LO 9 Understand the usefulness of the statement of cash flows" LO 9 Understand the usefulness of the statement of cash flows"
Chapter
5-46
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