Professional Documents
Culture Documents
23-1
CHAPTER
23
Intermediate Accounting
13th Edition
Kieso, Weygandt, and Warfield
Chapter
23-2
Learning
Learning Objectives
Objectives
Chapter
23-3
Statement
Statement of
of Cash
Cash Flows
Flows
Preparation of the
Statement
Usefulness
Classification of cash
flows
Format of statement
Steps in preparation
Examples
Sources of information
Indirect vs. direct
method
Chapter
23-4
Special Problems
in Statement
Preparation
Adjustments similar to
depreciation
Accounts receivable (net)
Other working capital
changes
Net losses
Gains
Stock options
Postretirement benefit
costs
Extraordinary items
Significant noncash
transactions
Use of a Worksheet
Preparation of
worksheet
Analysis of
transactions
Preparation of final
statement
Section
Section 11 -- Preparation
Preparation of
of the
the
Statement
Statement of
of Cash
Cash Flows
Flows
Primary purpose:
To provide information about a companys cash
receipts and cash payments during a period.
Secondary objective:
To provide cash-basis information about the
companys operating, investing, and financing
activities.
Chapter
23-5
Usefulness
Usefulness of
of the
the
of
of Cash
Cash Flows
Flows
Statement
Statement
Classification
Classification of
of Cash
Cash Flows
Flows
Operating
Activities
Income
Statement
Items
Investing
Activities
Generally
Long-Term
Asset Items
Financing
Activities
Generally
Long-Term
Liability
and
Equity Items
Classification
Classification of
of Cash
Cash Flows
Flows
Cash and Cash Equivalent
Classification
Classification of
of Cash
Cash Flows
Flows
Classification of Typical Inflows and Outflows
Illustration 23-1
Income
Statement
Items
Chapter
23-9
Classification
Classification of
of Cash
Cash Flows
Flows
Classification of Typical Inflows and Outflows
Illustration 23-1
Generally
Long-Term
Asset Items
Chapter
23-10
Classification
Classification of
of Cash
Cash Flows
Flows
Classification of Typical Inflows and Outflows
Illustration 23-1
Generally
Long-Term
Liability and
Equity Items
Chapter
23-11
Classification
Classification of
of Cash
Cash Flows
Flows
Typical
Company
Product Life
Cycle
Chapter
23-12
Format
Format of
of the
the Statement
Statement of
of Cash
Cash Flows
Flows
Order of Presentation:
1.
Operating activities.
2.
Investing activities.
3.
Financing activities.
Direct Method
Indirect Method
Format
Format of
of the
the Statement
Statement of
of Cash
Cash Flows
Flows
Illustration 23-2
Chapter
23-14
Steps
Steps in
in Preparation
Preparation
Three Sources of Information:
1. Comparative balance sheets
2. Current income statement
3. Selected transaction data
First
First Example
Example -- 2009
2009
Illustration: Tax Consultants Inc. started on January 1,
2009, when it issued 60,000 shares of $1 par value
common stock for $60,000 cash. The company rented its
office space, furniture, and equipment, and performed tax
consulting services throughout the first year.
The comparative balance sheets at the beginning and end
of the year 2009 appear in Illustration 23-3. Illustration
23-4 shows the income statement and additional
information for Tax Consultants.
Chapter
23-16
First
First Example
Example -- 2009
2009
Comparative
Balance
Sheets,
Year 1
Income
Statement,
Year 1
Chapter
23-17
Illustration 23-3
Illustration 23-4
First
First Example
Example -- 2009
2009
Step 1: Determine the Change in Cash
Illustration 23-3
Chapter
23-18
First
First Example
Example -- 2009
2009
Step 2: Determine the Net Cash Flow from
Operating Activities
A company must determine revenues and expenses on a
cash basis.
Eliminate the effects of income statement transactions
that do not result in an increase or decrease in cash.
Convert net income to net cash flow from operating
activities through either a direct method or an indirect
method.
Chapter
23-19
First
First Example
Example -- 2009
2009
Step 2: Determine the Net Cash Flow from
Operating Activities
Illustration 23-5
Chapter
23-20
First
First Example
Example -- 2009
2009
Direct Method
Deducts operating cash disbursements from
operating cash receipts.
Illustration 23-6
First
First Example
Example -- 2009
2009
Direct Method
Illustration 23-6
Accounts Receivable
1/1/09
Balance
Revenues
12/31/09 Balance
Chapter
23-22
89,000
125,000
36,000
LO 4 Contrast the direct and indirect methods of calculating
net cash flow from operating activities.
First
First Example
Example -- 2009
2009
Direct Method
Illustration 23-6
Accounts Payable
1/1/09
Payments for expenses
80,000
Balance
Operating expenses
12/31/09 Balance
Chapter
23-23
0
85,000
5,000
First
First Example
Example -- 2009
2009
Direct Method
Illustration 23-6
6,000
Balance
Tax expense
12/31/09 Balance
Chapter
23-24
0
6,000
0
First
First Example
Example -- 2009
2009
Indirect Method
Adjusts net income for items not affecting cash.
Illustration 23-8
First
First Example
Example -- 2009
2009
Step 3: Determine Net Cash Flows from Investing
and Financing Activities
Illustration 23-3
LO 5
First
First Example
Example -- 2009
2009
Step 3: Determine Net Cash Flows from Investing
and Financing Activities
Illustration 23-3
LO 5
First
First Example
Example -- 2009
2009
Step 3: Determine Net Cash Flows from Investing
and Financing Activities
Illustration 23-3
Chapter
23-28
LO 5
First
First Example
Example -- 2009
2009
Statement of Cash Flows - 2009
Chapter
23-29
Illustration 23-9
Operating
Operating Activities
Activities
Indirect
Indirect Method
Method
E23-6: KRC Companys financial statements for the year ended
December 31, 2010, contained the following condensed information.
Chapter
23-30
Operating
Operating Activities
Activities
Indirect
Indirect Method
Method
E23-6: Prepare the operating activities section of the statement of
cash flows using the indirect method (Step 2).
Cash flows from operating activities
Net income
Adjustment to reconcile net income
to net cash provided by operating activities:
Depreciation expense
Loss on sale of equipment
Decrease in accounts receivable
Increase in accounts payable
Decrease in income taxes payable
Net cash provided by operating activities
Chapter
23-31
Solution on
notes page
$ 90,000
60,000
26,000
17,000
10,000
(4,500)
198,500
Operating
Operating Activities
Activities
Direct
Direct Method
Method
E23-5: KRC Companys financial statements for the year ended
December 31, 2010, contained the following condensed information.
Assume accounts
payable relates
to operating
expenses.
Chapter
23-32
Operating
Operating Activities
Activities
Direct
Direct Method
Method
E23-5: Prepare the operating activities section of the statement of
cash flows using the Direct method (Step 2).
Illustration 23-22
Accounts Receivable
1/1/10
Balance
Revenues
12/31/10 Balance
Chapter
23-33
59,000
840,000
37,000
Operating
Operating Activities
Activities
Direct
Direct Method
Method
E23-5: Prepare the operating activities section of the statement of
cash flows using the Direct method (Step 2).
Illustration 23-24
Accounts Payable
1/1/10
Payments to suppliers
609,000
Balance
Operating expenses
12/31/10 Balance
Chapter
23-34
31,000
624,000
46,000
Operating
Operating Activities
Activities
Direct
Direct Method
Method
E23-5: Prepare the operating activities section of the statement of
cash flows using the Direct method (Step 2).
Illustration 23-24
44,500
Balance
Chapter
23-35
8,500
40,000
4,000
Operating
Operating Activities
Activities
Direct
Direct Method
Method
E23-5: Prepare the operating activities section of the statement of
cash flows using the Direct method (Step 2).
Chapter
23-36
Solution on
notes page
Step
Step 3:
3: Determine
Determine Net
Net Cash
Cash Flow
Flow from
from
Investing
Investing and
and Financing
Financing Activities
Activities
E23-2 (a): Plant assets that had cost $25,000 6 years
before and were being depreciated on a straight-line basis
over 10 years with no estimated scrap value were sold for
$5,300.
Chapter
23-37
LO 5
Statement
Statement of
of Cash
Cash Flows
Flows (a,b,d,h)
(a,b,d,h)
I
F
Chapter
23-38
E23-2
E23-2 (b)
(b)
E23-2 (b): During the year, 10,000 shares of
common stock with a stated value of $10 a share
were issued for $33 a share.
Chapter
23-39
LO 5
Statement
Statement of
of Cash
Cash Flows
Flows (a,b,d,h)
(a,b,d,h)
I
F
Chapter
23-40
E23-2
E23-2 (d)
(d)
E23-2 (d): The company sustained a net loss for the
year of $50,000. Depreciation amounted to $22,000,
and a gain of $9,000 was realized on the sale of land
for $39,000 cash.
Chapter
23-41
LO 5
Statement
Statement of
of Cash
Cash Flows
Flows (a,b,d,h)
(a,b,d,h)
I
F
Chapter
23-42
E23-2
E23-2 (h)
(h)
E23-2 (h): During the year, treasury stock costing
$47,000 was purchased.
Chapter
23-43
LO 5
Statement
Statement of
of Cash
Cash Flows
Flows (a,b,d,h)
(a,b,d,h)
I
F
Chapter
23-44
Statement
Statement of
of Cash
Cash Flows
Flows (a,b,d,h)
(a,b,d,h)
I
F
Chapter
23-45
Sources
Sources of
of Information
Information for
for the
the
Statement
Statement of
of Cash
Cash Flows
Flows
1. Comparative balance sheets.
2. An analysis of the Retained Earnings.
3. Writedowns, amortization charges, and similar
Chapter
23-46
Net
Net Cash
Cash Flow
Flow from
from Operating
Operating Activities
Activities
Indirect
Indirect Versus
Versus Direct
Direct Method
Method
Adjustments Needed to Determine Net Cash Flow from Operating
Activities Indirect Method
Illustration 23-18
Chapter
23-47
Net
Net Cash
Cash Flow
Flow from
from Operating
Operating Activities
Activities
Indirect
Indirect Versus
Versus Direct
Direct Method
Method
Direct Method - Companies adjust each item in the income
statement from the accrual basis to the cash basis.
Illustration 23-21
Chapter
23-48
Direct
Direct Versus
Versus Indirect
Indirect Controversy
Controversy
In Favor of the Direct Method
Shows operating cash receipts and payments.
Information about cash receipts and payments is
more revealing of a companys ability
1. to generate sufficient cash from operating
activities to pay its debts,
2. to reinvest in its operations, and
3. to make distributions to its owners.
Chapter
23-49
Direct
Direct Versus
Versus Indirect
Indirect Controversy
Controversy
In Favor of the Indirect Method
Focuses on the differences between net income
and net cash flow from operating activities.
Provides link between the statement of cash flows
and the income statement and balance sheet.
Special Rules Applying to Indirect Methods
Disclose Interest paid.
Disclose Income taxes paid.
Chapter
23-50
Special
Special Problems
Problems in
in Statement
Statement Preparation
Preparation
1. Adjustments similar to depreciation
Amortization of limited-life intangible assets.
Amortization of deferred costs.
Amortization of bond discount or premium.
Changes in deferred income taxes.
Change related to an investment when recording
income or loss under the equity method.
Chapter
23-51
Special
Special Problems
Problems in
in Statement
Statement Preparation
Preparation
2. Accounts receivable, net
3. Other working capital changes
4. Net losses
5. Gains
6. Stock options
7. Postretirement benefits
8. Extraordinary items
9. Significant noncash transactions
Chapter
23-52
Use
Use of
of aa Worksheet
Worksheet
A worksheet involves the following steps.
Step 1. Enter the balance sheet accounts and their
beginning and ending balances in the balance sheet accounts
section.
Step 2. Enter the data that explain the changes in the
balance sheet accounts and their effects on the statement
of cash flows in the reconciling columns of the worksheet.
Step 3. Enter the increase or decrease in cash on the cash
line and at the bottom of the worksheet. This entry should
enable the totals of the reconciling columns to be in
agreement.
Chapter
23-53
Both iGAAP and U.S. GAAP require that the statement of cash
flows should have three major sectionsoperating, investing, and
financingalong with changes in cash and cash equivalents.
Chapter
23-54
Chapter
23-55
Copyright
Copyright
Copyright 2010 John Wiley & Sons, Inc. All rights reserved.
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caused by the use of these programs or from the use of the
information contained herein.
Chapter
23-56