Lecture - 11(Int Revised)

8/6/2019 Lecture - 11(Int Revised)

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Chapter5-1

Balance Sheet andStatement of Cash Flows

ChapterChapter55

Intermediate Accounting12th Edition

Kieso, Weygandt, and Warfield

Prepared by Coby Harmon, University of California, Santa Barbara


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Chapter5-2

1.1. Indicate the purpose of the statement ofIndicate the purpose of the statement ofcash flows.cash flows.

2.2. Identify the content of the statement of

Identify the content of the statement ofcash flows.cash flows.

3.3. Prepare a statement of cash flows.Prepare a statement of cash flows.

4.4. Understand the usefulness of the statementUnderstand the usefulness of the statement

of cash flows.of cash flows.

Learning Objectives


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Chapter5-3

The Statement of Cash Flows

LO 6 Indicate the purpose of the statement of cash flows.LO 6 Indicate the purpose of the statement of cash flows.

One of the three basic objectives offinancial reporting is

assessing the amounts, timing,and uncertainty of cash flows.


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Chapter5-4

To provide relevant information about the cashreceipts and cash payments of an enterprise

during a period.The statement provides answers to the followingquestions:

1. Where did the cash come from?

2. What was the cash used for?

3. What was the change in the cash balance?

Purpose of the Statement


LO 6 Indicate the purpose of the statement of cash flows.LO 6 Indicate the purpose of the statement of cash flows.


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Chapter5-5

Three different activities:

Operating,

Content and Format


LO 7 Identify the content of the statement of cash flows.LO 7 Identify the content of the statement of cash flows.

Investing, Financing


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Chapter5-6

Content and Format


OperatingOperating

Cash inflowsand outflowsfromoperations.

InvestingInvesting

Cash inflowsand outflowsfromnon-currentassets.

FinancingFinancing

Cash inflowsand outflowsfromnon-currentliabilities and

equity.

The statements value is that it helps users evaluateliquidity, solvency, and financial flexibility.

LO 7Identify the content of the statement of cash flows.LO 7Identify the content of the statement of cash flows.


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Chapter5-7

Information obtained from several sources:(1) comparative balance sheets,

(2) the current income statement, and

(3) selected transaction data.

Preparation


LO 8Prepare a statement of cash flows.LO 8Prepare a statement of cash flows.


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Chapter5-8


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Chapter5-9

Preparation


LO 8Prepare a statement of cash flows.LO 8Prepare a statement of cash flows.

Midwest Beverage Company reported the followingitems in the most recent year.

Activity

Operating

Financing

Operating

Operating

InvestingOperating

Financing

Required: Prepare a Statement of Cash Flows


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Chapter5-10

Preparationtate ent o a o (i u )

Operati acti ities

N i 40 000$

I i u i (10 000)

I i u 5 000D i i x 40 000

i 75 000

Investingactivities

u qui (8,000)

Financingactivities

20,000Di i i (5,000)

i i 15,000

Increase incash 82,000$

The Statement of CashFlows

LO 8 Prepareastatement of cash flows.LO 8 Prepareastatement of cash flows.

Noncashcredittorevenues.

Noncashchargetoexpenses.


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Chapter

5-11

ReviewReview

n preparing a statement of cash flows, which of then preparing a statement of cash flows, which of thefollowing transactions would be considered an investingfollowing transactions would be considered an investing

activity?activity?a.a. Sale of equipment at book valueSale of equipment at book value

b.b. Sale of merchandise on creditSale of merchandise on credit

c.c. eclaration of a cash dividendeclaration of a cash dividend

d.d. ssuance of bonds payable at a discountssuance of bonds payable at a discountreceivable.receivable.

Balance Sheet

LO 8 Prepare a statement of cash flows.LO 8 Prepare a statement of cash flows.


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Chapter

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Issuance of common stock to purchase assets.Conversion of bonds into common stock.Issuance of debt to purchase assets.E changes on long-lived assets.

Additional Information Reported

Significant financing and investing activitiesthat do not affect cash are reported in either aseparate schedule at the bottom of the

statement of cash flows or in the notes.E amples include:

LO 8 Prepare a statement of cash flows.LO 8 Prepare a statement of cash flows.


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Chapter

5-13

High amount - company able togenerate sufficient cash to pay its

bills.

Low amount - company may have toborrow or issue equity securities to pay

bills.

Usefulness of the Statement of Cash Flows

Without cash, a company will not survive.

Cash flow from Operations:

LO 9Understand the usefulness of the statement of cash flows.LO 9Understand the usefulness of the statement of cash flows.


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Chapter

5-14


Ratio indicates whether the company can payoff its current liabilities from its operations.A ratio near 1:1 is good.

LO 9 Understand the usefulness of the statement of cash flows.LO 9 Understand the usefulness of the statement of cash flows.

Financial Liquidity

et Cash Provided by

Operating ActivitiesAverage Current Liabilities

Current CashDebt CoverageRatio

=


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Chapter

5-15


This ratio indicates a companys ability to

repay its liabilities from net cash providedby operating activities, without having toliquidate the assets employed in itsoperations.


Financial Flexibility

et Cash Provided by

Operating ActivitiesAverage Total Liabilities

Cash DebtCoverage Ratio =


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Chapter

5-16


The amount of discretionary cash flow a companyhas for purchasing additional investments, retiringits debt, purchasing treasury stock, or simplyadding to its liquidity.

LO 9Understand the usefulness of the statement of cash flows.LO 9Understand the usefulness of the statement of cash flows.

Free Cash Flow


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Chapter

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ReviewReview

The current cash debt coverage ratio is often used toThe current cash debt coverage ratio is often used toassessassess

a. financial fle ibility.a. financial fle ibility.

b. liquidity.b. liquidity.

c. profitability.c. profitability.

d. solvency.d. solvency.

Balance Sheet


Documents

Lecture - 11(Int Revised)