The CASH FLOW Statement(Statement of changes in financial

position)Text Chapter 18, Pages 820-842, 854-857Practice Questions:1. BE18-1, BE18-2, BE18-3, E18-1, E18-22. BE18-4, Be18-5, BE18-6, E18-3, E18-4, E18-53. BE18-11, E18-10, E18-11

18-3- 18-3- THREE MAJOR STEPS IN PREPARING THREE MAJOR STEPS IN PREPARING THE CASH FLOW STATEMENTTHE CASH FLOW STATEMENT

18-3- 18-3- THREE MAJOR STEPS IN PREPARING THREE MAJOR STEPS IN PREPARING THE CASH FLOW STATEMENTTHE CASH FLOW STATEMENT

+ or -The difference between the beginning and ending cash balances can be easily calculated from comparative balance sheets.

The difference between the beginning and ending cash balances can be easily calculated from comparative balance sheets.

This step involves analysing not only the current year’s income statement but also comparative balance sheets and selected additional data.

This step involves analysing not only the current year’s income statement but also comparative balance sheets and selected additional data.

XYZ Goods

This step involves analysing comparative balance sheet data and selected additional information for their effects on cash.

This step involves analysing comparative balance sheet data and selected additional information for their effects on cash.

For Sale Investing Financing

Step 1: Determine the net increase (decrease) in cash.

Step 2: Determine net cash provided (used) by operating activities.

Step 3: Determine net cash provided (used) by investing and financing activities.

What is a Statement of Changes in Financial Position ?

The statement of changes in financial position (SCFP) is an operating statement - like the income statement. That is, it portrays activities that have occurred during a designated financial period. A SCFP summarizes the operating, financing and investing activities of a business for a period on a cash basis and cash equivalents. It explains how the cash position of a company has changed over the period. A SCFP focuses only on transactions that occur with cash or cash equivalents; this differs from what you are used to in financial accounting which is accrual based. Common accrual accounting transactions such A/P, A/R, recognized revenue that has not been collected are not cash transactions.

OPERATING ACTIVITIES:The most important part!

• begin with the NI from continuing operations on the income statement

• add or subtract changes from the current non-cash accounts on the balance sheet (A/P, A/R, inventories, prepaid and accrued expenses (use year over year)

• add back non-cash items from the income statement such as depreciation and amortization

NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES

(B/S: Noncash Current Assets and Current Liabilities)

Adjustments to Convert Net Incometo Net Cash Provided (Used) by

Operating ActivitiesAdd* Deduct*

Change in Current Asset Account BalanceAccounts receivable Decrease IncreaseInventory Decrease IncreasePrepaid expenses Decrease IncreaseOther current assets Decrease Increase

Change in Current Liability Account BalanceAccounts payable Increase DecreaseAccrued expenses payable Increase DecreaseOther current liabilities Increase Decrease

* Add (deduct) change in account balance to net income

NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES

(I/S: Noncash Items)

Adjustments to Convert NetIncome to Net Cash Provided

(Used) by Operating Activities

Noncash Items on Income Statement

Amortization (of capital assets) expenseAddAmortization of bond discount to interest expenseAddAmortization of bond premium to interest expense DeductLoss on sale of asset AddGain on sale of asset DeductIncome from long-term equity investment Deduct

Computer Services Corp Ill. 18-4 p. 829

Balance Sheet

ASSETS31-Dec-

02 01-Jan-02 CHANGEIn/decrease

Cash 34000 0    

AR 30000 0    

Inventory 25000 0    

Equipment 10000 0    

TOTAL 99000 0    

   

LIABILITIES & OE    

AP 15000 0    

accrued expenses payable 4000 0    

Common shares 60000 0    

Retained earnings 20000 0    

TOTAL 99000 0    

Computer Services Corp Ill. 18-4 p. 829

Balance Sheet

ASSETS31-Dec-

0201-Jan-

02 CHANGEIn/decrease

Cash 34000 0 34000 +

AR 30000 0 30000 +

Inventory 25000 0 25000 +

Equipment 10000 0 10000 +

TOTAL 99000 0

LIABILITIES & OE

AP 15000 0 15000 +

accrued expenses payable 4000 0 4000 +

Common shares 60000 0 60000 +

Retained earnings 20000 0 20000 +

TOTAL 99000 0

SCFP go to excel spread sheet!

Computer Services Corp Ill. 18-9 p. 835

Balance Sheet, December 31

ASSETS 2003 2002 CHANGE In/decrease

Cash 56,000 34,000    

AR 20,000 30,000    

Inventory 75,000 25,000    

Prepaid expenses 4,000 0    

Land 130,000 0    

Buildings 160,000 0    

Accum. Amort. Build -11,000 0    

Equipment 27,000 10,000    

Accum. Amort. Equip -3,000 0    

TOTAL 458,000 99,000    

   

LIABILITIES & OE    

AP 115,000 15,000    

accrued expenses payable 9,000 4,000    

Bonds Payable 130,000    

Common shares 60,000 60,000    

Retained earnings 144,000 20,000    

TOTAL 458,000 99,000    

Computer Services Corp Ill. 18-9 p. 835

Balance Sheet, December 31

Cash 56,000 34,000 22,000 +

AR 20,000 30,000 -10,000 -

Inventory 75,000 25,000 50,000 +

Prepaid expenses 4,000 0 4,000 +

Land 130,000 0 130,000 +

Buildings 160,000 0 160,000 +

Accum. Amort. Build -11,000 0 -11,000 -

Equipment 27,000 10,000 17,000 +

Accum. Amort. Equip -3,000 0 -3,000 -

TOTAL 458,000 99,000

LIABILITIES & OE

AP 115,000 15,000 100,000 +

accrued expenses payable 9,000 4,000 5,000 +

Bonds Payable 130,000 130,000 +

Common shares 60,000 60,000 0

Retained earnings 144,000 20,000 124,000 +

TOTAL 458,000 99,000

SCFP go to excel spread sheet!