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Download ACCT 201 ACCT 201 ACCT 201 Reporting and Analyzing Cash Flows UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 12

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  • Slide 1
  • ACCT 201 ACCT 201 ACCT 201 Reporting and Analyzing Cash Flows UAA ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Chapter 12
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  • TopicLOReadHW Cash Flows From Operating Activities P3 538- 540 E3, 6, 7 Cash Flows From Investing Activities P4 543- 545 E8, E9 Cash Flows From Financing Activities P4 545- 548 E8, E9 Decision AnalysisA1, A2 548- 550 QS9 Chapter 12 - Day 2 - Agenda No Homework Due Today!
  • Slide 4
  • Section 1: Net Cash Flows From Operating Activities ACCT 201 ACCT 201 ACCT 201 Operating Activities Investing Activities Financing Activities
  • Slide 5
  • ACCT 201 ACCT 201 ACCT 201 Accrual Accounting... Under GAAP most companies use accrual basis accounting: Revenue is recorded when earned; and Expenses are recorded when incurred.
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  • ACCT 201 ACCT 201 ACCT 201 Accrual Accounting... Under accrual basis accounting net income will include Revenues not collected in cash Expenses not paid in cash Thus, accrual basis net income does not reflect cash flows from operating activities.
  • Slide 7
  • ACCT 201 ACCT 201 ACCT 201 Accrual Accounting and the SCF... To obtain net cash flows from operating activities - we will need to undo the effects of accrual accounting! That is, we need to go from accrual based accounting to cash based accounting.
  • Slide 8
  • #@!#@! Accrual to Cash.. Hes got to be Kidding! Hes not kidding!!! #@!#@!
  • Slide 9
  • #@!#@! Why didnt we just do cash the first time?
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  • From Accrual to Cash Obtaining Net Cash Flow From Operating Activities From Accrual to Cash Obtaining Net Cash Flow From Operating Activities Net Income Net Income Incurred Expenses Incurred Expenses Earned Revenues Earned Revenues Net Cash Flows From Operating Activities Net Cash Flows From Operating Activities Eliminate Noncash Revenues Eliminate Noncash Expenses
  • Slide 11
  • Accrual-Basis Accounting Accrual-Basis Accounting A Focus on Revenues Earned Expenses Incurred, and Net Income A Focus on Revenues Earned Expenses Incurred, and Net Income Income Statement Income Statement Cash-Basis Accounting Cash-Basis Accounting A Focus on Revenues Recd, Expenses Paid, & Net Cash Provided (used) by Oper. Act. A Focus on Revenues Recd, Expenses Paid, & Net Cash Provided (used) by Oper. Act. Statement of Cash Flows Statement of Cash Flows Relationship Between Income Statement and Stmt of Cash Flows Adjustments and Eliminations That Produce
  • Slide 12
  • Well, I guess that isnt so bad after all!
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  • How do I go about doing that?
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  • ACCT 201 ACCT 201 ACCT 201 Preparing the SCF... There are two ways we can accomplish the conversion from accrual to cash. The Direct Method, and The Indirect Method
  • Slide 15
  • ACCT 201 ACCT 201 ACCT 201 Preparing the SCF... The FASB, after a great deal of study, has ruled that both approaches are acceptable. However, they prefer and encourage use of the direct method.
  • Slide 16
  • Direct, Indirect omigosh here we go again! #@!#@! anyway!
  • Slide 17
  • Section 1: Net Cash Flows From Operating Activities ACCT 201 ACCT 201 ACCT 201 Operating Activities Investing Activities Financing Activities
  • Slide 18
  • The Direct Method ACCT 201 ACCT 201 ACCT 201 Accrual Based Accounting Cash Based Accounting ending in a net source or use of funds. Under the Direct Method, firms provide a list of operating sources and uses of funds,
  • Slide 19
  • The Direct Method Cash Received From Customers$xx,xxx Less Cash Payments For: $xx,xxxPurchases of Merchandise Interestxx,xxx Selling & Admin. Expensesxx,xxx Net Cash Provided (Used) by Oper. Activities$xx,xxx xx,xxxIncome Taxesxx,xxx
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  • The Indirect Method ACCT 201 ACCT 201 ACCT 201 Accrual Based Accounting Cash Based Accounting Under the Indirect method, firms begin with Net Income And make a series of adjustments to arrive at the net source or use of funds.
  • Slide 21
  • The Indirect Method Net Income, Accrual Basis$xx,xxx Add(Deduct) items to convert NI to a Cash Basis: Noncash expenses (e.g. Depr., Amortization) Gains/Losses related to nonoperating activities Gains Losses Current Assets Related to Operating Activities Net Cash Provided (Used) by Oper. Activities Deduct Add Increase in Accounts BalanceDeduct Decrease in Accounts BalanceAdd Current Liab. Related to Operating Activities Increase in Accounts Balance Decrease in Accounts Balance Add Deduct $xx,xxx
  • Slide 22
  • Oh, My, Decisions, Decisions. What should it be? Direct or Indirect
  • Slide 23
  • ACCT 201 ACCT 201 ACCT 201 Direct Vs. Indirect... The direct method is preferred by FASB, and is the more informative of the two formats. The indirect method is somewhat easier to prepare and is used by the majority of firms.
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  • ACCT 201 ACCT 201 ACCT 201 Direct Vs. Indirect... The indirect method... Shows only the net cash provided More informative of the two. It shows the inflows and outflows of cash from operating activities.
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  • The Statement of Cash Flows ACCT 201 ACCT 201 ACCT 201 Steps in Preparing the Statement of Cash Flows
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  • Steps in Preparation of SCF ACCT 201 ACCT 201 ACCT 201 Analyze the cash account. Determine net cash flows from operating activities. Analyze remaining balance sheet items. Prepare the statement of cash flows.
  • Slide 27
  • Analyzing Non-Cash Accounts ACCT 201 ACCT 201 ACCT 201 Cash = Liabilities Stockholders Equity Noncash Assets Derives from... Assets = Liabilities Stockholders Equity The changes in cash can be determined by analyzing the noncash accounts on the balance sheet.
  • Slide 28
  • The Statement of Cash Flows ACCT 201 ACCT 201 ACCT 201 Lets At the Direct Method for preparing the Cash Flows From Operating Activities Section
  • Slide 29
  • Section 1: Net Cash Flows From Operating Activities ACCT 201 ACCT 201 ACCT 201 Operating Activities Investing Activities Financing Activities
  • Slide 30
  • The Direct Method Cash Received From Customers$xx,xxx Less Cash Payments For: $xx,xxxPurchases of Merchandise Interestxx,xxx Selling & Admin. Expensesxx,xxx Net Cash Provided (Used) by Oper. Activities$xx,xxx xx,xxxIncome Taxesxx,xxx
  • Slide 31
  • Cash Received From Customers ACCT 201 ACCT 201 ACCT 201 We can get this information from two places! From the Cash Receipts Journal; or From accrual sales information
  • Slide 32
  • Cash Received From Customers ACCT 201 ACCT 201 ACCT 201 Lets At Accrual- Based Sales
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  • Cash Received From Customers Accrual Based Sales Decrease in Accounts Receivable Increase in Accounts Receivable Cash Received From Customers ACCT 201 ACCT 201 ACCT 201
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  • Cash Paid For Wages & Operating Expenses ACCT 201 ACCT 201 ACCT 201 The cash paid for wages and other operating expenses is affected by (1) whether the expense was prepaid, and (2) whether the expense was accrued. {{ Cash paid for wages and other operating expenses = Wages and other operating expenses + Increase in prepaid expenses - Decrease in prepaid expenses + Decrease in accrued liabilities - Increase in accrued liabilities
  • Slide 35
  • Cash Paid For Merchandise ACCT 201 ACCT 201 ACCT 201 Step 1: Purchases = Cost of Goods Sold Increase in Mdse Inventory Decrease in Mdse Inventory Step 2: Cash Paid for Merchandise = Purchases Decrease in Accounts Payable Increase in Accounts Payable
  • Slide 36
  • Cash Paid for Interest & Taxes ACCT 201 ACCT 201 ACCT 201 Cash paid for interest = Interest Expense +Decrease in interest payable -Increase in interest payable { Cash paid for taxes = Tax Expense +Decrease in taxes payable -Increase in taxes payable {
  • Slide 37
  • ACCT 201 ACCT 201 ACCT 201 Under the Direct Method Depreciation, Amortization and Depletion Expenses do not appear on the SCF Gains and losses do not appear on the SCF.
  • Slide 38
  • The Statement of Cash Flows ACCT 201 ACCT 201 ACCT 201 Lets At the Indirect Method for preparing the Cash Flows From Operating Activities Section
  • Slide 39
  • 97.5% of all companies use the indirect method. Net Income Cash Flows from Operating Activities Changes in current assets and current liabilities. + Losses and - Gains + Noncash expenses such as depreciation and amortization. The Indirect Method
  • Slide 40
  • Use this table when adjusting Net Income to Operating Cash Flows. Indirect Method of Reporting Operating Cash Flows Change in Account Balance During Year IncreaseDecrease Current Assets Subtract from Net Income Add to Net Income Current Liabilities Add to Net Income Subtract from Net Income
  • Slide 41
  • Put on your thinking cap!!!
  • Slide 42
  • Remember! Remember!
  • Slide 43
  • Accounts Receivable is increased by credit sales. Accounts Receivable xx Accounts Receivable is decreased by cash payments received from customers. Think about Ac

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