Account Chapter 11

Depreciation expense & Loss on Sale of Land

Dep exp of $9000, -has no effect on cash flows, therefor not reported Loss on sale of land: originally purchased for $10,000, sold it for $6,000 -report $6,000 cash inflow as investing and ignore the loss

Cash paid to suppliers

costs of goods sold $650,000 -Did they pay cash to suppliers for those goods? -Look at Inventory & Accounts payable T-accounts

1) Operating Activities

include cash receipts & cash payments for transactions relating to revenue & expense activities. -same activities reported on Income Statement -include elements of NI but reported on a cash basis Exp: collection of cash from customers, payment of cash for investors purchases, salaries, rent Cash Inflows: sale of goods or services, receipt of interest & DVDS (received!!) Cash Outflows: Purchase of inventory: for operating expenses, interest, income taxes

Cash Paid for Operating Expenses

-examine changes in current A & L for any account related to operating. rent expense vs prepaid rent

Cash received from customers

-net sales of $1,012,000... were the sales received in cash? -accounts receivable increases $7000 -Therefore, subtract to get cash received from customers as $1,005,000

Operating Activties- Indirect & direct method

-the total net cash flows from operating activities are identical under both methods -the investing & financing sections are identical under both -differ only in the presentation format

Information source of preparing the Stmt of Cash Flows Look at 11-4 on pg 510

1) Income Stmt: determines cash flows for operating Act 2) Balance Sheet: Look at change in A, L, & SE accounts from the end of the last period to the end of this period to find cash flows 3) Detailed accounting records: additional info from records to determine specific cash inflows/outflows

Direct Method Pg 529-536 Picture on 536

Adjusts the item on the income statement to directly show the cash inflows & outflows form operations, such as cash received from customers & cash paid for inventory, salaries, rent, interest & taxes -report cash inflows/outflows directly into SCF -if a company uses this, must also use the indirect method -income stmt items that have no cash effect such as depreciation expense or gains/losses on sale of assets are not reported under this method

Indirect Method (learn later in year)

Begins with net income & then lists adjustments to net income in order to arrive at operating cash flows -more popular, easier & less costly to prepare -99% of companies use this

3) Financing Activities

Both inflows & outflows of cash resulting from the external financing of a business Exp: borrowing & repaying debt, issuing & repurchasing stock & DVDs (paid!!) Cash Inflows: insurance of bonds or notes payable, issuance of stock Cash Outflows: repayment of bonds or notes payable, reacquisition of stock (treasury stock), Payments of DVDs

3 primary categories of statement of cash flows

Cash floors from: 1) Operating Activities 2) Investing Activities 3) Financing Activities

Cash paid for Income Taxes

Income tax expense $16,000, related to income tax payable which decreased $2,000. This means they paid $2,000 more than the income tax expense recorded. We add 16+2=$18,000 (cash paid for income taxes)

Cash paid for Interest

Interest expense $5,000, related to interest payable (if interest payable increases, the interest expense exceeds cash paid. Interest increases $1,000. Do 5-4=$1000 (cash paid for interest)

Non-cash Activities

Significant investing & financing activities that do not affect cash -reported either directly after the cash flow stmt or in a note to the financial stmts Exps: purchase of long-term assets by issuing debt or stock, conversion of bonds payable into common stock, exchange of long-term assets

2) Investing Activities

include cash transactions involving the purchase & sale of long-term assets & current investments Exps: purchase & sale of long-term assets & investments Cash Inflows: Sale of investments, sale of long-term assets, collection of notes receivable Cash Outflows: purchase of investments, purchase of long-term assets, lending with notes receivable

Statement of Cash Flows

provides a summary of cash inflows & cash outflows during the reporting period