5 The statement of Cash flows ntermediate Accounting Accounting School. Zhongnan
5 The Statement of Cash Flows Accounting School ·Zhongnan University of Economics & Law ntermediate Accounting I 中级会计学
Intermediate Accounting 5 The Statement of Cash Flows 1. Conceptual overview and uses of the Statement of cash Flows A statement of cash flows is a financial statement of a company that shows the cash inflows cash outflows and net change in cash from its operating investing, and financing activities during an accounting period, in a manner that reconciles the company's beginning and ending cash balances
1. Conceptual overview and uses of the Statement of Cash Flows Intermediate Accounting 5 The Statement of Cash Flows A statement of cash flows is a financial statement of a company that shows the cash inflows, cash outflows, and net change in cash from its operating, investing, and financing activities during an accounting period, in a manner that reconciles the company's beginning and ending cash balances
Intermediate Accounting 5 The Statement of Cash Flows Uses of statement of cash Flows The statement of cash flows helps users to assess-- The company's ability to generate positive future cash flows The company's ability to meet its obligations and pay dividends The companys need for external financing The reasons for differences between the company's net income and associated cash receipts and payments Both the cash and noncash aspects of the companys investing and financing transactions
Uses of Statement of Cash Flows Intermediate Accounting 5 The Statement of Cash Flows The statement of cash flows helps users to assess-- ➢ The company’s ability to generate positive future cash flows. ➢ The company’s ability to meet its obligations and pay dividends. ➢ The company’s need for external financing. ➢ The reasons for differences between the company’s net income and associated cash receipts and payments. ➢ Both the cash and noncash aspects of the company’s investing and financing transactions
Intermediate Accounting 5 The Statement of Cash Flows 2 Structure of the statement of cash Flows Three categories of cash flows (1) Cash flows from operating activities 2)Cash flows from investing activities (3)Cash flows from financing activities
2. Structure of the Statement of Cash Flows Three categories of cash flows (1) Cash flows from operating activities. (2) Cash flows from investing activities. (3) Cash flows from financing activities. Intermediate Accounting 5 The Statement of Cash Flows
Intermediate Accounting 5 The Statement of Cash Flows Cash Flows from Operating Activities Operating activities include all transactions and other events that are not investing and financing activities Operating activities include transactions involving acquiring, selling, and delivering goods for sale, as well as providing services Cash receipts from the sale Cash payments to of goods or services and suppliers for inventory collections of accounts and on account. for receivable are typical cash wages, and for taxes are inflows from operating examples of cash activities outflows from operating activities
Cash Flows from Operating Activities Operating activities include all transactions and other events that are not investing and financing activities. Operating activities include transactions involving acquiring, selling, and delivering goods for sale, as well as providing services. Cash receipts from the sale of goods or services and collections of accounts receivable are typical cash inflows from operating activities. Cash payments to suppliers for inventory and on account, for wages, and for taxes are examples of cash outflows from operating activities. Intermediate Accounting 5 The Statement of Cash Flows
Intermediate Accounting 5 The Statement of Cash Flows Cash Flows from Investing Activities The Cash Flows From Investing Activities section includes all the cash inflows and outflows involved in investing activities transactions of the company Common cash flows from investing activities are-- Receipts from selling investments in stocks and debt securities Receipts from selling property, plant, and equipment Payments for investments in stocks and debt securities Payments for purchases of property, plant, and equipment
Cash Flows from Investing Activities The Cash Flows From Investing Activities section includes all the cash inflows and outflows involved in investing activities transactions of the company. Common cash flows from investing activities are-- Intermediate Accounting 5 The Statement of Cash Flows ➢ Receipts from selling investments in stocks and debt securities. ➢ Receipts from selling property, plant, and equipment. ➢ Payments for investments in stocks and debt securities. ➢ Payments for purchases of property, plant, and equipment
Intermediate Accounting 5 The Statement of Cash Flows Cash Flows from Financing Activities The Cash Flows From Financing Activities section includes all the cash inflows and outflows involved in the financing activities transactions of the company Common financing activities are Receipts from the issuance of debt securities Receipts from the issuance of stocks Payment of dividends Payments to retire debt securities Payments to reacquire stock
Cash Flows from Financing Activities Intermediate Accounting 5 The Statement of Cash Flows The Cash Flows From Financing Activities section includes all the cash inflows and outflows involved in the financing activities transactions of the company. Common financing activities are-- ➢ Receipts from the issuance of debt securities. ➢ Receipts from the issuance of stocks. ➢ Payment of dividends. ➢ Payments to retire debt securities. ➢ Payments to reacquire stock
Intermediate Accounting 5 The Statement of Cash Flows Supplemental disclosures Non-cash investing and financing activities affect an entitys financial position but not the entity 's cash flow during a period should be disclosed in supplemental part to cash flow statement
Supplemental disclosures Non-cash investing and financing activities affect an entity’s financial position but not the entity’s cash flow during a period should be disclosed in supplemental part to cash flow statement. Intermediate Accounting 5 The Statement of Cash Flows
Intermediate Accounting 5 The Statement of Cash Flows 3. Reporting Cash Flow From Operations Operating cycle A company's operating cycle is the average time taken to spend cash for inventory, process and sell the inventory. collect the accounts receivable and convert them back into cas Net income and the net cash flow within the operating cycle are unlikely to be the same because of differences between the timing of the cash flows and the recognition of revenues and expenses
3. Reporting Cash Flow From Operations Operating cycle A company's operating cycle is the average time taken to spend cash for inventory, process and sell the inventory, collect the accounts receivable, and convert them back into cash. Net income and the net cash flow within the operating cycle are unlikely to be the same because of differences between the timing of the cash flows and the recognition of revenues and expenses. Intermediate Accounting 5 The Statement of Cash Flows
Intermediate Accounting 5 The Statement of Cash Flows Two methods FASB allows two ethods for calculating and reporting a company's net cash flow from operating activities Direct method Indirect method
Two methods FASB allows two methods for calculating and reporting a company's net cash flow from operating activities: ✓ Direct method ✓ Indirect method Intermediate Accounting 5 The Statement of Cash Flows