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Cash, Short-term Investments and Accounts Receivable

Cash, Short-term Investments and Accounts Receivable. Chapter 4. Chapter 10. Statement of Cash Flows. Chapter 10 Learning Objectives. Identify and distinguish among operating, investing, and financing activities. Prepare a statement of cash flows using the indirect method.

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Cash, Short-term Investments and Accounts Receivable

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  1. Cash, Short-term Investmentsand Accounts Receivable Chapter 4 Chapter 4

  2. Chapter 10 Statement of Cash Flows

  3. Chapter 10Learning Objectives • Identify and distinguish among operating, investing, and financing activities. • Prepare a statement of cash flows using the indirect method. • Prepare a statement of cash flows using the direct method. • Identify the principal users of the statement of cash flows for financial decision makers. • Compute an interpret cash flows ratios, cash flow per share, and free cash flows. Chapter 10

  4. Three Types of Cash Flows OPERATING INVESTING FINANCING Chapter 10

  5. The Statement of Cash Flows Chapter 10

  6. Summary of Transaction Classifications for the SCF Chapter 10

  7. Summary of Transaction Classifications for the SCF Chapter 10

  8. Summary of Transaction Classifications for the SCF Chapter 10

  9. Review Gilbert Company purchases $100,000 face value 10% bonds from Garbo Company for $100,000 cash. This will appear on Gilbert’s statement of cash flows as a • cash inflow from operating activities. • cash inflow from investing activities. • cash outflow from investing activities. • cash outflow from financing activities. Chapter 10

  10. Review Gilbert Company purchases $100,000 face value 10% bonds from Garbo Company for $100,000 cash. This will appear on Gilbert’s statement of cash flows as a • cash inflow from operating activities. • cash inflow from investing activities. • cash outflow from investing activities. • cash outflow from financing activities. Chapter 10

  11. Review Browning Company issued 2,000 shares of its $5 par value common stock for $6 cash per share. This will appear on Browning’s statement of cash flows as a • cash inflow from operating activities. • cash inflow from financing activities. • cash outflow from investing activities. • cash outflow from financing activities. Chapter 10

  12. Review Browning Company issued 2,000 shares of its $5 par value common stock for $6 cash per share. This will appear on Browning’s statement of cash flows as a • cash inflow from operating activities. • cash inflow from financing activities. • cash outflow from investing activities. • cash outflow from financing activities. Chapter 10

  13. Review Browning Company borrowed $50,000 by issuing a long-term note payable. This will appear on Browning’s statement of cash flows as a • cash inflow from operating activities. • cash outflow from financing activities. • cash outflow from investing activities. • cash inflow from financing activities. Chapter 10

  14. Review Browning Company borrowed $50,000 by issuing a long-term note payable. This will appear on Browning’s statement of cash flows as a • cash inflow from operating activities. • cash outflow from financing activities. • cash outflow from investing activities. • cash inflow from financing activities. Chapter 10

  15. Methods for Reporting Cash Flows from Operations Direct Method: --operating section lists specific cash inflows and outflows from operating activities Indirect Method: --the net cash flow from operating activities is determined by making certain adjustments to net income (More informative) (Reconciliation required by GAAP) Chapter 10

  16. Direct Method Example Cash flows from operating activities: Receipts from customers $575,043 Payments to suppliers (424,607) Payments to employees (108,646) Payments for insurance (2,428) Receipt of interest on bank savings 3,454 Payments of interest on capital leases (7,273) Payments of income taxes (15,230) Net cash provided by operating activities $20,313 Chapter 10

  17. Indirect Method Example Cash flows from operating activities: Net Income $61,386 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 29,738 Loss on sale of equipment 460 Increase in Accounts Receivable (24,957) Increase in Inventory (12,684) Decrease in Prepaid Insurance 2,575 Decrease in Accounts Payable (38,405) Increase in Income Taxes Payable 2,200 Net cash provided by operating activities $20,313 Chapter 10

  18. Indirect Method – Start With Net Income Chapter 10

  19. Review On a statement of cash flows prepared using the indirect method, depreciation expense is • added under the operating activities. • deducted under the financing activities. • ignored. • added under the investing activities. Chapter 10

  20. Review On a statement of cash flows prepared using the indirect method, depreciation expense is • added under the operating activities. • deducted under the financing activities. • ignored. • added under the investing activities. Chapter 10

  21. Review On a statement of cash flows prepared using the indirect method, a loss on the sale of equipment is • deducted under the operating activities. • deducted under the financing activities. • ignored. • added under the operating activities. Chapter 10

  22. Review On a statement of cash flows prepared using the indirect method, a loss on the sale of equipment is • deducted under the operating activities. • deducted under the financing activities. • ignored. • added under the operating activities. Chapter 10

  23. Review On a statement of cash flows prepared using the indirect method, a decrease in accounts receivable is • deducted under the investing activities. • deducted under the financing activities. • added under the operating activities. • added under the investing activities. Chapter 10

  24. Review On a statement of cash flows prepared using the indirect method, a decrease in accounts receivable is • deducted under the investing activities. • deducted under the financing activities. • added under the operating activities. • added under the investing activities. Chapter 10

  25. Direct Method • Convert credit sales on the income statement to cash collected on account. • Convert cost of goods sold on the income statement to cash paid for inventory. • Convert operating expenses reported on the income statement to cash paid for operating expenses. • Convert interest expense on the income statement to cash paid for interest. • Convert income tax expense on the income statement to cash paid for income tax. Chapter 10

  26. Converting Credit Sales into Cash Collected Assume beginning accounts receivable is $0, credit sales are $600,000, and ending accounts receivable is $24,957. Solve for cash collected on account. Chapter 10

  27. Converting Cost of Goods Sold into Cash Paid for Inventory Assume beginning inventory is $17,954, cost of goods sold is $398,156, and ending inventory is $30,638. Solve for purchases of inventory. Chapter 10

  28. Converting Cost of Goods Sold into Cash Paid for Inventory Continued Assume beginning accounts payable is $52,100, purchases are $410,840, and ending accounts payable is $13,695. Solve for cash payments to suppliers. Chapter 10

  29. Converting Income Tax Expense into Cash Paid for Taxes Assume beginning taxes payable is $3,000, income tax expense is $24,150,and ending taxes payable is $800. Solve for cash payments for taxes. Chapter 10

  30. Converting Insurance Expense into Cash Paid for Prepaid Insurance Assume beginning prepaid insurance is $5,000, insurance expense is $5,210, and ending prepaid insurance is $2,425. Solve for cash payments for taxes. Chapter 10

  31. Converting Insurance Expense into Cash Paid for Prepaid Insurance Assume beginning prepaid insurance is $5,000, insurance expense is $5,210, and ending prepaid insurance is $2,425. Solve for cash payments for taxes. Chapter 10

  32. Review Callison Company reports a beginning balance in accounts receivable of $2,500, credit sales of $55,000, and an ending balance in accounts receivable of $700. Cash collected on account amounted to • $57,500. • $55,700. • $56,800. • $52,500. Chapter 10

  33. Review Callison Company reports a beginning balance in accounts receivable of $2,500, credit sales of $55,000, and an ending balance in accounts receivable of $700. Cash collected on account amounted to • $57,500. • $55,700. • $56,800. • $52,500. Chapter 10

  34. Review Callison Company reports a beginning balance in prepaid insurance of $5,000, insurance expense on the income statement of $18,000, and an ending balance in prepaid insurance of $5,200. Cash paid for insurance during the current period amounted to • $17,800. • $18,000. • $18,200. • $18,400. Chapter 10

  35. Review Callison Company reports a beginning balance in prepaid insurance of $5,000, insurance expense on the income statement of $18,000, and an ending balance in prepaid insurance of $5,200. Cash paid for insurance during the current period amounted to • $17,800. • $18,000. • $18,200. • $18,400. Chapter 10

  36. Review Callison Company reports cost of goods sold on the income statement of $59,000. Beginning and ending accounts payable balances are $10,000 and $11,500, respectively. Beginning and ending merchandise inventory balances are $22,500 and $24,000, respectively. Compute cash paid for merchandise inventory. • $46,500. • $59,000. • $60,500. • $57,500. Chapter 10

  37. Review Callison Company reports cost of goods sold on the income statement of $59,000. Beginning and ending accounts payable balances are $10,000 and $11,500, respectively. Beginning and ending merchandise inventory balances are $22,500 and $24,000, respectively. Compute cash paid for merchandise inventory. • $46,500. • $59,000. • $60,500. • $57,500. Chapter 10

  38. Cash Flow Per Share Net Cash Flow from Operating Activities - Preferred Stock Dividends Weighted Average Number of Shares of Common Stock Outstanding Chapter 10

  39. Free Cash Flow FCF = Cash provided by operating activities – Capital investments for PP&E Chapter 10

  40. Problem Review Heedy Company reports net income of $15,000. Depreciation expense is $3,000, accounts receivable decreased $2,500, inventory increased $3,500, and accounts payable increased $2,300. Compute the cash flow from operating activities. Chapter 10

  41. Problem Review Solution Chapter 10

  42. THE END! Chapter 10

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