cash flow good(three)
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Cash-Flow AnalysisCash-Flow Analysis Cash-Flow AnalysisCash-Flow Analysis
Prof. PUTTU GURU PRASADFACULTY
INC GUNTURpgp4149@gmail.com
AS-3AS-3 Cash Flow Statements
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IndexIndex Introduction Applicability Definitions Cash and Cash equivalents Features of Cash Flow Statement
Operating Activities Investing Activities Financing Activities
• Interest• Dividend• Foreign Currency transactions• Extraordinary items• Treatment of Tax• Investments in subsidiaries, associates and joint ventures• Acquisitions and disposals of subsidiaries and other business units• Non-cash transactions• Disclosures of cash and cash equivalents
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WHYWHY PREPARE A CASH FLOW PREPARE A CASH FLOW STATEMENT?STATEMENT?
Balance sheets, an income statement and statement of changes in equity are based on accrual accounting and provide only piecemeal information about flows of funds and cash
Cash flow statement identifies cash inflows and outflows from activities over the period
Statement helps answer questions such as: Why is the company in a liquidity crisis when it has been profitable over the past few years?
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WHY AWHY A CASH FLOW CASH FLOW STATEMENT?STATEMENT? Profit and liquidity for a normal firm preparing its
accounts on the accrual basis does not mean the same thing. A firm may be highly profitable but may find itself with hardly any cash or working capital to continue the operating cycles, a heavy loss making firm may find itself flush with funds. Only in case of a firm that prepares its accounts on the cash basis will find its profits and cash flow to be the same.
Hence is the reason for preparing the cash flow statements to understand the actual requirements of cash and cash equivalents
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CFSCFS help investors help investors Asses the company’s ability to generate cash
flows from operations in the future
Assess the company’s ability to meet its obligations, any requirement of external financing and to pay the shareholder’s dividends.
Analyze the reasons for the difference between the net profit and cash flows
Analyze the effects on the organization's financial position of its cash and non-cash investing and financing activities
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IntroductionIntroduction Most developed counties, as early as in 1988, stated their
preference to cash flow reporting rather than funds flow reporting
The difference basically lies in the fact that while funds flow refers to the entire working capital, cash flow only takes cash and cash equivalents into consideration.
Thus, whereas funds flow is based on accrual basis and funds from operation is nothing but net profit plus all non –cash expenses and amortizations, cash flow is based purely based upon the movements of cash and its equivalents.
This makes cash flow reporting much more attractive
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IntroductionIntroduction
Cash flow statement is additional information to user of financial statement
This statement exhibits the flow of incoming and outgoing cash
This statement assesses the ability of the enterprise to generate cash and cash equivalents
It also assesses the needs of the enterprise to utilize the cash and cash equivalents generated
It also assesses the liquidity and solvency of the enterprise.
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ApplicabilityApplicability
This standard applies to the enterprises:
Having turnover more than Rs. 50 Crores in a financial year;
Listed companies;
Cash flow statement of listed companies shall be presented only under the indirect method as prescribed in AS 3
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DefinitionsDefinitions Cash comprises cash on hand and demand
deposits with banks. Cash equivalents are short term, highly liquid
investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
Cash flows are inflows and outflows of cash and cash equivalents.
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DefinitionsDefinitions Operating activities are the principal revenue-
producing activities of the enterprise and other activities that are not investing or financing activities.
Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.
Financing activities are activities that result in changes in the size and composition of the owners’ capital (including preference share capital in the case of a company) and borrowings of the enterprise.
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CashCash and Cash Equivalents and Cash Equivalents Cash Equivalents
Held for meeting short term commitments It is readily convertible into known amounts of
cash It has a very insignificant risk Short maturity (say 3 months maximum)
Cash flows exclude Movements between cash and cash
equivalents Cash management includes the investment of
excess cash in cash equivalents
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FeaturesFeatures of Cash Flow of Cash Flow StatementStatement
The cash flow statement should report cash flows during the period classified by
Operating,
Investing and
Financing activities. Sum of these three types of cash flow reflect net
increase or decrease of cash and cash equivalents.
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OperatingOperating Activities Activities
These are principal revenue producing activities of the enterprise.
Examples: Cash receipts from sale of goods / rendering
services; Cash receipts from royalties, fees,
commissions and other revenue; Cash payments to suppliers of goods and
service; Cash payments to and on behalf of employees.
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InvestmentInvestment Activities Activities The activities of acquisition and disposal
of long term assets and other investments not included in cash equivalent are investing activities.
It includes making and collecting loans, acquiring and disposal of debt and equity instruments, property and fixed assets etc.
Examples of cash flows arising from investing activities are as follows:
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InvestmentInvestment Activities Activities Examples of investing activities are
as follows: Cash payments to acquire fixed assets Cash receipts from disposal of fixed assets Cash payments to acquire shares,
warrants or debt instruments of other enterprises and interest in joint ventures
Cash receipt from disposal of above investments
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Financing Financing ActivitiesActivities
Those activities that result in changes in size and composition of owners capital and borrowing of the organization.
It includes receipts from issuing shares, debentures, bonds, borrowing and payment of borrowed amount, loan etc. Sale of share Buy back of shares Redemption of preference shares Issue / redemption of debentures Long term loan / payment thereof Dividend / interest paid
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Cash flowCash flow from operating from operating activitiesactivities
It can be derived either from direct method or indirect method
Direct method:
In this method, gross receipts and gross payments of cash are disclosed
Indirect method:
In this method, profit and loss account is adjusted for the effects of transaction of non-cash nature.
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InterestInterest
Interest Received Received from investment – it is in investment activities Received from short term investment classified, as cash
equivalents should be considered as cash inflows from operating activities.
Received on trade advances and operating receivables should be in operating activities
Interest Paid On loans / debts are in financing activities On working capital loan and any other loan taken to
finance operating activities are in operating activities Cash flow from interest should be separately disclosed.
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DividendDividend
Dividend Received
For financial enterprises – in operating activities
For other than financial enterprises – in investing activities
Dividend Paid
Always classified as financing activities
Cash flow from dividend should be separately disclosed
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ForeignForeign currency transaction currency transaction
The effect of change in exchange rate in cash and cash equivalents held in foreign currency should be reported as separate part of the reconciliation of cash and cash equivalents.
Unrealized gain and losses arising from changes in foreign exchanges rates are not cash flows.
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ExtraordinaryExtraordinary items items
The cash flows associated with extraordinary items should be classified as arising from:
Operating
Investing or
Financing activities
as appropriate and separately disclosed.
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Treatment Treatment of taxof tax
Cash flow for tax payments / refund should be classified as cash flow from operating activities.
If cash flow can be specifically identified as cash flow from investment / financing activities, appropriate classification should be made.
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InvestmentsInvestments in subsidiaries, in subsidiaries, associatesassociates and joint ventures and joint ventures
Only the cash flow between itself and the investee is required to be reported
Example:
Cash flow relating to dividends and advances
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Acquisitions Acquisitions and disposals of and disposals of subsidiariessubsidiaries and other business and other business unitsunits Cash flow on acquisition and disposal of subsidiaries and
other business units should be :
Presented separately
Classified as investing activities
Total purchase and disposal should be disclosed separately
The position of the purchase / disposal consideration discharged by means of cash and cash equivalents should be disclosed
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NonNon-cash transactions-cash transactions
These should be excluded from the cash flow statement These transactions should be disclosed in the financial
statements. Examples
Acquisition of assets by assuming directly related liabilities
Acquisition of an enterprise by means of issue of equity sshares
Conversion of debt to equity
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DisclosuresDisclosures of cash and cash of cash and cash equivalentsequivalents
The components of cash and cash equivalents should be disclosed
Reconciliation of the amount in the cash flow statement with the equivalent items reported in the balance sheet
The amount of cash and cash equivalent balance held by the enterprises that are not available for use (with explanation by management)
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ANALYSINGANALYSING THE CASH FLOWTHE CASH FLOW Statements of cash flows help users:
To evaluate a company’s ability to generate positive cash flows
meet its obligations to shareholders, creditors and governments
assess a company’s solvency and need for external financing
explain variances between reported accrual profit and cash flows from operating activities
Single statements are of limited use, a useful analysis requires statements covering five or more years.
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Statement of Cash Flows:
The connection between two successive balance sheets & the statement of cash flows can be shown :
a. Assets = Liabilities Owners’ equity b. Cash Noncash assets = Liabilities Owners’ equity
c. Cash = Liabilities Noncash assets Owners’ equity
d. Cash = Liab Noncash assets Owners’ equity
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II. Statement of Cash Flows:
Cash = Liab – Noncash assets Owners’ equity
The cash flow statement simultaneously provides an explanation of why a firm’s cash position has changed between successive balance sheet dates and explains changes that have taken place in the firm’s noncash asset, liability, and stockholders’ equity accounts over the same time period.
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II. Statement of Cash Flows:
The change in a firm’s cash position between successive balance sheet dates will not equal the reported earnings for that period.
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Flow of FundsFlow of Funds Statement StatementFlow of FundsFlow of Funds Statement Statement
Has been replaced by the cash flow cash flow statementstatement (1989) in U.S. audited annual
reports.
Has been replaced by the cash flow cash flow statementstatement (1989) in U.S. audited annual
reports.
A summary of a firm’s changes in financial position from one period to
another; it is also called a sources and uses of funds statement or a statement
of changes in financial position.
A summary of a firm’s changes in financial position from one period to
another; it is also called a sources and uses of funds statement or a statement
of changes in financial position.
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Flow of FundsFlow of Funds Statement StatementFlow of FundsFlow of Funds Statement Statement
All of the firm’s investments and claims against those investments.
Extends beyond just beyond just transactions involving cashcash.
All of the firm’s investments and claims against those investments.
Extends beyond just beyond just transactions involving cashcash.
What are “fundsfunds”?
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Sources and Sources and Uses StatementUses StatementSources and Sources and Uses StatementUses Statement
The letters labeling the boxes stand for UUsesses, SSourcesources, AAssetsssets, and LLiabilitiesiabilities (broadly defined). The pluses (minuses) indicate increases (decreases) in assets or liabilities.
The letters labeling the boxes stand for UUsesses, SSourcesources, AAssetsssets, and LLiabilitiesiabilities (broadly defined). The pluses (minuses) indicate increases (decreases) in assets or liabilities.
AA LL
- +
+ -
SS
UU
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BW’s Determination BW’s Determination of Sources and Usesof Sources and UsesBW’s Determination BW’s Determination of Sources and Usesof Sources and Uses
$ 100 - S 410 - S 616 + U 5 -- 9 + U$ 1,140$ 1,140 N/A 930 N/A (299) N/A$ 631$ 631 + U 50 -- 223 --$ 2,044$ 2,044
$ 100 - S 410 - S 616 + U 5 -- 9 + U$ 1,140$ 1,140 N/A 930 N/A (299) N/A$ 631$ 631 + U 50 -- 223 --$ 2,044$ 2,044
Cash and C.E. $ 90 Acct. Rec. 394 Inventories 696 Prepaid Exp 5 Accum Tax Prepay 10 Current AssetsCurrent Assets $ $ 1,195 1,195 Fixed Assets (@Cost) 1030 Less: Acc. Depr. (329) Net Fix. AssetsNet Fix. Assets $ 701 $ 701 Investment, LT 50 Other Assets, LT 223
Total AssetsTotal Assets $ 2,169$ 2,169
Assets 2007 2006 +/- S/UAssets 2007 2006 +/- S/U
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BW’s Determination BW’s Determination of Sources and Usesof Sources and UsesBW’s Determination BW’s Determination of Sources and Usesof Sources and Uses
$ 100 $10 S 410 16 S 616 80 U 5 -- 9 1 U
$ 1,140$ 1,140 N/A 930 N/A (299) N/A$ 631$ 631 70 U 50 -- 223 --$ 2,044$ 2,044
$ 100 $10 S 410 16 S 616 80 U 5 -- 9 1 U
$ 1,140$ 1,140 N/A 930 N/A (299) N/A$ 631$ 631 70 U 50 -- 223 --$ 2,044$ 2,044
Cash and C.E. $ 90 Acct. Rec. 394 Inventories 696 Prepaid Exp 5 Accum Tax Prepay 10 Current AssetsCurrent Assets $ $ 1,195 1,195 Fixed Assets (@Cost) 1030 Less: Acc. Depr. (329) Net Fix. AssetsNet Fix. Assets $ 701 $ 701 Investment, LT 50 Other Assets, LT 223
Total AssetsTotal Assets $ 2,169$ 2,169
Assets 2007 2006 +/- S/UAssets 2007 2006 +/- S/U
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BW’s Determination BW’s Determination of Sources and Usesof Sources and UsesBW’s Determination BW’s Determination of Sources and Usesof Sources and Uses
$ 295 - U 94 -- 16 -- 100 --$$ 505505 N/A
453 + S 200 -- 729 -- 157 + S$ $ 1086 1086 N/A$ 2,044$ 2,044
$ 295 - U 94 -- 16 -- 100 --$$ 505505 N/A
453 + S 200 -- 729 -- 157 + S$ $ 1086 1086 N/A$ 2,044$ 2,044
Notes Payable $ 290 Acct. Payable 94 Accrued Taxes 16 Other Accrued Liab. 100
Current Liab.Current Liab. $ 500 $ 500 Long-Term Debt 530 Shareholders’ Equity Com. Stock ($1 par) 200 Add Pd in Capital 729 Retained Earnings 210
Total EquityTotal Equity $ $ 1,1391,139 Total Liab/EquityTotal Liab/Equity $ $ 2,1692,169
Liabilities and Equity 2007 2006 +/- S/ULiabilities and Equity 2007 2006 +/- S/U
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BW’s Determination BW’s Determination of Sources and Usesof Sources and UsesBW’s Determination BW’s Determination of Sources and Usesof Sources and Uses
$ 295 $ 5 U 94 -- 16 -- 100 --$$ 505505 N/A
453 77 S 200 -- 729 -- 157 53 S$ $ 1086 1086 N/A$ 2,044$ 2,044
$ 295 $ 5 U 94 -- 16 -- 100 --$$ 505505 N/A
453 77 S 200 -- 729 -- 157 53 S$ $ 1086 1086 N/A$ 2,044$ 2,044
Notes Payable $ 290 Acct. Payable 94 Accrued Taxes 16 Other Accrued Liab. 100
Current Liab.Current Liab. $ 500 $ 500 Long-Term Debt 530 Shareholders’ Equity Com. Stock ($1 par) 200 Add Pd in Capital 729 Retained Earnings 210
Total EquityTotal Equity $ $ 1,1391,139 Total Liab/EquityTotal Liab/Equity $ $ 2,1692,169
Liabilities and Equity 2007 2006 +/- S/ULiabilities and Equity 2007 2006 +/- S/U
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USESUSES $156$156
Increase, Inventories $80
Increase, Accum Tax Prepay 1
Decrease, Notes Payable 5
Increase, Net Fixed Assets 70
$156$156
USESUSES $156$156
Increase, Inventories $80
Increase, Accum Tax Prepay 1
Decrease, Notes Payable 5
Increase, Net Fixed Assets 70
$156$156
SOURCESSOURCES
Increase, Retained Earnings $ 53
Decrease, Accounts Receivable 16
Increase, Long-Term Debt 77
Decrease, Cash + Cash Equivalents 10
““Basic” Sources Basic” Sources and Uses Statementand Uses Statement““Basic” Sources Basic” Sources and Uses Statementand Uses Statement
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Adjusting the “Basic” Adjusting the “Basic” Sources and Uses StatementSources and Uses StatementAdjusting the “Basic” Adjusting the “Basic” Sources and Uses StatementSources and Uses Statement
The following three slides are Basket Wonders’ Balance Sheet and Income Statement that was
discussed in Chapter 6.
This information will be needed to adjust the “basic” Sources
and Uses Statement.
The following three slides are Basket Wonders’ Balance Sheet and Income Statement that was
discussed in Chapter 6.
This information will be needed to adjust the “basic” Sources
and Uses Statement.
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Basket Wonders’ Balance Basket Wonders’ Balance Sheet (Asset Side)Sheet (Asset Side)Basket Wonders’ Balance Basket Wonders’ Balance Sheet (Asset Side)Sheet (Asset Side)
a. How the firm stands on a specific date.
b. What BW owned.c. Amounts owed by
customers.d. Future expense items
already paid.e. Cash/likely convertible
to cash within 1 year.f. Original amount paid.g. Acc. deductions for
wear and tear.
a. How the firm stands on a specific date.
b. What BW owned.c. Amounts owed by
customers.d. Future expense items
already paid.e. Cash/likely convertible
to cash within 1 year.f. Original amount paid.g. Acc. deductions for
wear and tear.
Cash and C.E. $ 90 Acct. Rec.cc 394 Inventories 696 Prepaid Exp dd 5 Accum Tax Prepay 10 Current AssetsCurrent Assetsee $1,195 $1,195 Fixed Assets (@Cost)ff 1030 Less: Acc. Depr. gg (329)
Net Fix. AssetsNet Fix. Assets $ 701 $ 701 Investment, LT 50 Other Assets, LT 223
Total AssetsTotal Assetsbb $2,169 $2,169
Basket Wonders Balance Sheet (thousands) Dec. 31, 2007Basket Wonders Balance Sheet (thousands) Dec. 31, 2007a
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Basket Wonders’ Balance Basket Wonders’ Balance Sheet (Liability Side)Sheet (Liability Side)Basket Wonders’ Balance Basket Wonders’ Balance Sheet (Liability Side)Sheet (Liability Side)
a. Note, Assets = Liabilities + Equity.
b. What BW owed and ownership position.
c. Owed to suppliers for goods and services.
d. Unpaid wages, salaries, etc.
e. Debts payable < 1 year.f. Debts payable > 1 year.g. Original investment. h. Earnings reinvested.
a. Note, Assets = Liabilities + Equity.
b. What BW owed and ownership position.
c. Owed to suppliers for goods and services.
d. Unpaid wages, salaries, etc.
e. Debts payable < 1 year.f. Debts payable > 1 year.g. Original investment. h. Earnings reinvested.
Notes Payable $ 290 Acct. Payablecc 94 Accrued Taxes dd 16 Other Accrued Liab. dd 100 Current Liab.Current Liab. ee $ $ 500 500 Long-Term Debt ff
530 Shareholders’ Equity Com. Stock ($1 par) gg 200 Add Pd in Capital gg
729 Retained Earnings hh 210 Total Total EquityEquity $ $1,1391,139
Total Liab/EquityTotal Liab/Equitya,ba,b $2,169 $2,169
Basket Wonders Balance Sheet (thousands) Dec. 31, 2007Basket Wonders Balance Sheet (thousands) Dec. 31, 2007
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Basket Wonders’ Basket Wonders’ Income StatementIncome StatementBasket Wonders’ Basket Wonders’ Income StatementIncome Statement
a. Measures profitability over a time period.
b. Received, or receivable, from customers.
c. Sales comm., adv., officer’s salaries, etc.
d. Operating income.e. Cost of borrowed funds.f. Taxable income.g. Amount earned for
shareholders.
a. Measures profitability over a time period.
b. Received, or receivable, from customers.
c. Sales comm., adv., officer’s salaries, etc.
d. Operating income.e. Cost of borrowed funds.f. Taxable income.g. Amount earned for
shareholders.
Net Sales $ 2,211 Cost of Goods Sold bb 1,599
Gross Profit $ 612 SG&A Expenses c c 402 EBITd $ 210 Interest Expensee 59 EBT f f $ 151 Income Taxes 60 EATg $ 91 Cash Dividends 38 Increase in REIncrease in RE $ 53 $ 53
Basket Wonders Statement of Earnings (in thousands) Basket Wonders Statement of Earnings (in thousands) for Year Ending December 31, 2007for Year Ending December 31, 2007a
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Adjusting the “Basic” Adjusting the “Basic” Sources and Uses StatementSources and Uses StatementAdjusting the “Basic” Adjusting the “Basic” Sources and Uses StatementSources and Uses Statement
Recognize Profits and DividendsRecognize Profits and Dividends
Change in retained earnings is composed of profits and dividends.
Source: Net Profit $91
Less Use: Cash Dividends 38
(Net) Source: Incr., R.E.(Net) Source: Incr., R.E. $53$53
Recognize Profits and DividendsRecognize Profits and Dividends
Change in retained earnings is composed of profits and dividends.
Source: Net Profit $91
Less Use: Cash Dividends 38
(Net) Source: Incr., R.E.(Net) Source: Incr., R.E. $53$53
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Adjusting the “Basic” Adjusting the “Basic” Sources and Uses StatementSources and Uses StatementAdjusting the “Basic” Adjusting the “Basic” Sources and Uses StatementSources and Uses Statement
Recognize Depreciation and Gross Recognize Depreciation and Gross Changes in Fixed AssetsChanges in Fixed Assets
Change in net fixed assets is composed of depreciation and fixed assets.
Source: Depreciation $ 30
Less Use: Add. to F.A. 100
(Net) Use: Incr., Net F.A. (Net) Use: Incr., Net F.A. $ 70$ 70
Recognize Depreciation and Gross Recognize Depreciation and Gross Changes in Fixed AssetsChanges in Fixed Assets
Change in net fixed assets is composed of depreciation and fixed assets.
Source: Depreciation $ 30
Less Use: Add. to F.A. 100
(Net) Use: Incr., Net F.A. (Net) Use: Incr., Net F.A. $ 70$ 70
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SOURCESSOURCES
Funds provided by operations
Net Profit $ 91
Depreciation 30
Decrease, Accounts Receivable 16
Increase, Long-Term Debt 77
Decrease, Cash + Cash Equivalents 10
$224$224
Sources and Uses Sources and Uses Statement (Sources Side)Statement (Sources Side)Sources and Uses Sources and Uses Statement (Sources Side)Statement (Sources Side)
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USESUSES
Dividends $ 38
Additions to fixed assets 100
Increase, Inventories 80
Increase, Accum. Tax Prepay 1
Decrease, Notes Payable 5
$224$224
Sources and Uses Sources and Uses Statement (Uses Side)Statement (Uses Side)Sources and Uses Sources and Uses Statement (Uses Side)Statement (Uses Side)
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Analyzing the Sources Analyzing the Sources and Uses Statementand Uses StatementAnalyzing the Sources Analyzing the Sources and Uses Statementand Uses Statement
UsesUses
Primarily through an increase in
inventories and expenditures on capital assets.
UsesUses
Primarily through an increase in
inventories and expenditures on capital assets.
SourcesSources
Primarily through net profit from
operations and long-term debt
increases.
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Statement of Cash FlowsStatement of Cash FlowsStatement of Cash FlowsStatement of Cash Flows
operating activitiesoperating activities,
investing activitiesinvesting activities, and
financing activitiesfinancing activities.
operating activitiesoperating activities,
investing activitiesinvesting activities, and
financing activitiesfinancing activities.
This statement reports cash inflowsinflows and outflowsoutflows based on the firm’s
A summary of a firm’s payments during a period of time.
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Statement of Cash FlowsStatement of Cash Flows
Cash Flow from Operating Activities
Shows impact of transactions not defined as investing or financing
activities.
These cash flows are generally the cash effects of transactions that enter into the determination of net income.
7-50
Cash Flow From Cash Flow From Operating ActivitiesOperating Activities
Cash InflowsCash InflowsFrom sales of goods or servicesFrom interest and dividend income
Cash OutflowsCash OutflowsTo pay suppliers for inventoryTo pay employees for servicesTo pay lenders (interest)To pay government for taxesTo pay other suppliers for other
operating expenses
7-51
Cash Flow From Cash Flow From Operating ActivitiesOperating Activities
It would seem more logical to classify interest and dividend income as an
“investing” inflow, while interest paid certainly looks like a “financing”
outflow.
But, the U.S. Financial Accounting Standards Board -- by a slim 4 to 3 vote -- classified these
items as “operating” flows.
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Statement of Cash FlowsStatement of Cash FlowsStatement of Cash FlowsStatement of Cash Flows
Cash Flow from Financing ActivitiesCash Flow from Financing Activities Shows impact of all cash transactions with shareholders and the borrowing
and repaying transactions with lenders.
Cash Flow from Financing ActivitiesCash Flow from Financing Activities Shows impact of all cash transactions with shareholders and the borrowing
and repaying transactions with lenders.
Cash Flow from Investing ActivitiesCash Flow from Investing Activities
Shows impact of buying and selling fixed assets and debt or equity
securities of other entities.
7-53
Cash Flow From Cash Flow From Investing ActivitiesInvesting Activities
Cash InflowsCash InflowsFrom sale of fixed assets (property, plant,
equipment)From sale of debt or equity securities (other
than common equity) of other entities
Cash OutflowsCash OutflowsTo acquire fixed assets (property, plant,
equipment)To purchase debt or equity securities (other
than common equity) of other entities
7-54
Cash Flow From Cash Flow From Financing ActivitiesFinancing Activities
Cash InflowsCash InflowsFrom borrowingFrom the sale of the firm’s own equity
securities
Cash OutflowsCash OutflowsTo repay amounts borrowedTo repurchase the firm’s own equity
securitiesTo pay shareholders dividends
7-55
Indirect Method -- Indirect Method -- Statement of Cash FlowsStatement of Cash Flows
Cash Flow from Operating ActivitiesCash Flow from Operating Activities
Net Income $ 91Depreciation 30Decrease, accounts receivable 16Increase, inventories ( 80)Increase, accum. tax prepay ( 1)
Net cash provided (used) byNet cash provided (used) by operating activitiesoperating activities $ 56$ 56
7-56
Indirect Method -- Indirect Method -- Statement of Cash FlowsStatement of Cash Flows
Cash Flow from Investing ActivitiesCash Flow from Investing Activities
Additions to Fixed Assets$(100)
Net cash provided (used) byNet cash provided (used) by investing activitiesinvesting activities $(100)$(100)
7-57
Indirect Method -- Indirect Method -- Statement of Cash FlowsStatement of Cash Flows
Cash Flow from Financing ActivitiesCash Flow from Financing Activities
Increase, notes payable $ ( 5)
Increase, long-term debt 77Dividends paid ( 38)
Net cash provided (used) by Net cash provided (used) by financing financing activitiesactivities $ 34$ 34
7-58
Indirect Method -- Indirect Method -- Statement of Cash FlowsStatement of Cash Flows
Increase (decrease) in cash Increase (decrease) in cash and cash equivalents and cash equivalents $ ( 10)$ ( 10)Cash and cash equivalents, 2006 Cash and cash equivalents, 2006 100 100Cash and cash equivalents, 2007 Cash and cash equivalents, 2007 $ 90$ 90
Supplemental cash flow disclosuresInterest paid $ 59Taxes paid 60
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