· 1

CORPORATE FINANCIAL REPORTING

23 – The Cash Flow

Statement

Dilutive Securities and EPS

· 2

THE CASH FLOW STATEMENT(FAS 95 or ASC 230)

Operating activities xxxx

Investing activities xxxx

Financing activities xxxx

Increase/decrease in cash xxxxCash, beginning of year xxx

Cash, end of the year xxxx

· 3

THE CASH FLOW STATEMENTPurpose of the CFS:

To provide information about a company’s cash receipts and cash payments during a period - organized in a rational manner.

· 4

THE CASH FLOW STATEMENT

Operating activities ◊ normal day-to-day income producing activities (including buying/selling Trading Securities)

Investing activities ◊ acquiring/disposing of non-current assets (including buying/selling Securities Available For Sale) & ◊ lending and being repaid the principal amount loaned

Financing activities ◊ borrowing and repaying the principal amount borrowed & ◊ all cash transactions with shareholders

· 5

THE CASH FLOW STATEMENTSuppose you saw the following under

ASSETS on a company’s balance sheet: (in $ 000)

2013 2012 Land 10,000 4,000

and under LIABILITIES there were no liabilities for a land purchase.

· 6

THE CASH FLOW STATEMENT

Suppose you saw the following under ASSETS on a company’s balance sheet:

(in $ 000) 2013 2012

Land 10,000 4,000

and under LIABILITIES there was: 2013 2012

Mortgage payable for land 5,000 -0-

· 7

THE CASH FLOW STATEMENT

Suppose you saw the following under ASSETS on a company’s balance sheet:

(in $ 000) 2013 2012

Land 10,000 24,000

And on the 2013 financial statements there was no mention of a land

impairment loss.

· 8

THE CASH FLOW STATEMENT

Suppose you saw the following under ASSETS on a company’s balance sheet:

(in $ 000) 2013 2012

Land 10,000 24,000Nothing about a receivable from sale of land.

And on the 2013 income statement you saw

Gain on land sale 5,000

· 9

THE CASH FLOW STATEMENT

Suppose you saw the following under ASSETS on a company’s balance sheet:

(in $ 000) 2013 2012

Land 10,000 24,000

Mortgage receivable-land 8,000 0

And on the 2013 income statement you saw

Gain on land sale 5,000

· 10

THE CASH FLOW STATEMENT

Suppose you saw the following under ASSETS on a company’s balance sheet:

(in $ 000) 2013 2012

Land 10,000 24,000

And on the 2013 income statement you saw

Land impairment loss 14,000

· 11

THE CASH FLOW STATEMENT

Suppose you saw the following under OWNERS’ EQUITY on a company’s balance

sheet: (in $ 000)

2013 2012 Capital stock 10,000 7,000 Additional paid in capital 14,000 9,000

· 12

THE CASH FLOW STATEMENT

For the most part, that is the approach companies take to prepare the Investing Activities and theFinancial Activities parts of their cash flow statements - they compare balances on the balance sheet.

· 13

THE CASH FLOW STATEMENT

But for Operating Activities, which is based, in part, on the income statement, companies have a choice:the direct method or the indirect method,both give you the same answer, using different approaches.