Chapter 12 Powerpoint Flashcards
Operating activities
Cash effects of transactions that create revenues and expenses
(enter into determination of net income)
Investing Activities
Cassh transactions that involve the purchase or disposal of investments and property, plant, and equipment
Lending money and collecting loans
Financing Activities
Obtaining cash from issuing debt and repaying the amounts borrowed
Obtaining cash from stockholders, repurchasing shares, and paying dividends
What kind: operating activities
Income Statement Items
What kind: Investing Activities
Generally long-term asset items
What kind: financing activities
Generally long-term liability and equity items
Comapnies do not report in the body of the statement of cash flows significant financing and investing activities that ______________
do not affect cash
ex. direct issuance of common stock to purchase assets; conversion of bonds into common stock
*should be reported in either a seperate schedule or not
**Satisfies the FULL DISCLOSURE PRINCIPLE
Information of the Statement of Cash Flows comes from 3 sources:
Comparative Balance Sheets - amount of the changes in assets, liabilities, and stock-holders’ equities from the beginning to the end of the period
Current Income Statement - used to determine the amount of cash provided or used by operations during the period
Additional Transaction Data - such transaction data needed to determine how cash was provided or used during the period
Preparing the Statement of Cash Flows involves 3 steps:
- Determine net cash provided/used by operating activities by converting net income from accrual basis to a cash basis
- Analyze changes in noncurrent asset and liability accounts and record as investing and financing activities, or significant noncash transactions
- Compare net change in st. of csh flows with the change in the cash account reported on the balance sheet to make sure the amounts agree
Indirect Method
Adjusts net income for items that do not affect cash to determine net cash provided by operating activities
*used by 99% of companies
**converts net income from an accrual basis to a cash basis
Direct method
Adjusts each item in the income statement from accrual basis to cash basis
4 phases (in order of their occurence)
Introductory Phase
Growth Phase
Maturity Phase
Decline Phase
Operations (60,000)
Investing (100,000)
Financing 70,000
Net income (38,000)
Introductory
Operations 30,000
Investing 25,000
Financing (90,000)
Net income 10,000
Decline
Operations 120,000
Investing 30,000
Financing (50,000)
Net income 100,000
Maturity
