Accounting chapter 12

change in cash formula

= change in liabilities + change in stockholders' equity - change in non-cash assets

3 steps to prepare a statement of cash flows

1. Determine the change in each balance sheet account 2. Identify the cash flow category/categories to which each account relates 3. create schedules that summarize the operating, investing, and financing cash flows

items needed to prepare a statement of cash flows

1. comparative balance sheets 2. complete income statement 3. additional data concerning accounts in the investing and financing activities

how to set up indirect method

Net income + depreciation - increase in accounts receivable - increase in inventories - increase in prepaid expenses + increase in accounts payable + increase in accrued liabilities = net cash flow provided by (used in) operating activities

cash flows from operating activities

are the cash inflows and outflows related directly to the revenues and expenses reported on the income statement. These activities involve day to day business activities with customers, suppliers, employees, landlords and others. Typical cash flow from these activities include: the inflows (Cash provided by) include collecting from customers, receiving dividends, receiving interest the outflows (Cash used for) include purchasing services (electricity, etc.) and goods for resale, paying salaries and wages, paying income taxes, paying interest

cash flows from investing activities

are the cash inflows and outflows related to the purchase and disposal of investments and long-lived assets. Typical cash flow from these activities include: the inflows (Cash provided by) include sale or disposal of property, plant, and equipment, sale or maturity of investments in securities the outflows (Cash used for) include purchase of property, plant and equipment, purchase of investments in securities

cash flows from financing activities

include exchanges of cash with stockholders and cash exchanges with lenders. Typical cash flows from these activities include: the inflows (Cash provided by) include borrowing from lenders through formal debt contracts, issuing stock to owners the outflows (Cash used for) include repaying principle to lenders, repurchasing stock from owners, paying cash dividends to owners

short term, highly-liquid investments that are purchased within three months of maturity can be considered equivalent to cash because they are

readily convertible to known amounts of cash and so near maturity that their value is unlikely to change

direct method

reports the total cash inflow or outflow from each main type of transaction. The difference between these cash inflows and outflows equal the net cash provided by (used in) operating activities

indirect method

starts with net income from the income statement and adjusts it by eliminating the effects of items that do not involve cash and including items that do have cash effects. Adjusting net income for these items yield the amount of net cash provided by (used in) operating activities