Beruflich Dokumente
Kultur Dokumente
QUESTIONS
1. The purpose of the cash flow statement is to report all major cash receipts (inflows)
and cash payments (outflows) during a period. It helps users to answer questions
such as:
How does a company obtain its cash?
Where does a company spend its cash?
What explains the change in the cash balance?
2. The direct method of reporting cash flows from operating activities itemizes the
major classes of cash receipts such as sales to customers, and also itemizes the
major classes of cash payments such as for merchandise, interest, taxes, and other
operating expenses.
3. On a statement of cash flows prepared according to the direct method, operating
activities generally include cash receipts from the sale of goods and services, cash
dividends received from stock investments in other entities, and interest on loans to
others. Operating activities also include cash outflows such as payments for
merchandise, salaries, rent, income taxes, utilities, and other operating expense
items.
4. The indirect method of reporting cash flows from operating activities begins with net
income and then adjusts it for items that are necessary to reconcile net income to
the net cash provided or used by operating activities.
5. On a statement of cash flows, investing activities include cash outflows from
purchases of long-term investments such as stocks and bonds, from purchases of
plant assets such as land, buildings, and machinery, and from purchases of other
noncurrent assets such as natural resources and intangible assets. When these
types of assets are sold, the cash inflows from the sales are also reported as
investing activities.
6. On a statement of cash flows, financing activities include cash inflows such as those
that result from issuing preferred or common stock, and from borrowing by issuing
bonds or signing long-term or short-term notes payable. Financing activities also
include cash outflows such as dividend payments to stockholders, purchases of
treasury stock, and repayments of debt.
7. Payments of cash dividends should be reported on the statement of cash flows as
financing activities.
1. The statement of cash flows reports the cash (and cash equivalent)
activities of a business for a specific accounting period. The cash flows
are classified into operating, investing, and financing activities. The net
change in cash as well as the beginning and ending cash balances are
also reported on the statement.
1. Investing 6. Financing
2. Operating 7. Operating
3. Operating 8. Operating
4. Operating 9. Investing*
5. Financing 10. Operating
Part 1
Computation of cash received from the sale of common stock
Increase in Common stock ($210,000 - $200,000)..................................... $ 10,000
Increase in Paid-in capital in excess of par value
($1,134,000 - $684,000)..............................................................................
450,000
Cash received from the sale of common stock......................................... $460,000
Part 2
Computation of cash paid for dividends
Beginning retained earnings....................................................................... $575,000
Net income....................................................................................................96,000
Total expected retained earnings............................................................ 671,000
Actual ending retained earnings................................................................. (627,000)
Cash paid for dividends............................................................................... $ 44,000
McGraw-Hill Companies, 2009
94 Fundamental Accounting Principles, 19th Edition
Quick Study 16-6 (10 minutes)
a
From QS 16-9B
b
From QS 16-10B
c
From QS 16-10B
d
$34,600 (income tax expense) + $2,400 (decrease in income taxes payable)
The balance sheet equation can be arranged so that the algebraic total of
all noncash items is equal to cash (see Exhibit 16.8). It follows that when
all changes in noncash balance sheet items are explained, the
corresponding change in cash is also explained. On the spreadsheet,
when the changes in all noncash balance sheet items have been accounted
for, we can be confident that the change in cash also has been fully
accounted for.
Investing Activities
Purchase of used equipment......................................................................
$(10,000)
Sale of short-term investments...................................................................
12,000
Cash provided by investing activities........................................................
$ 2,000
Financing Activities
Additional short-term borrowings..............................................................
$ 40,000
Cash dividends paid....................................................................................
(32,000)
Cash provided by financing activities........................................................
$ 8,000
Part 2
Cash flow on total assets ratio = Operating cash flows / Average total assets
= $204,833 / [($310,000 + $339,000)/2]
= $204,833 / $324,500
= 63.1%
BOULWARE, INC.
Statement of Cash Flows (Direct Method)
For Year Ended June 30, 2009
Cash flows from operating activities
Cash received from customers (Note 1)........... $967,832
Cash paid for merchandise (Note 2).................. (592,303)
Cash paid for operating expenses (Note 3)...... (112,194)
Cash paid for income taxes (Note 4)................. (58,502)
Net cash provided by operating activities........ $204,833
Notes
(1) Sales................................................................................................................ $976,600
Less increase in accounts receivable........................................................... (8,768)
Cash received from customers...................................................................... $967,832
VALENCIA COMPANY
Statement of Cash Flows
For Year Ended December 31, 2009
Cash flows from operating activities
Receipts from customers........................................... $ 834,200
Receipts of interest..................................................... 4,300
Payments for merchandise........................................ (433,784)
Payments for salaries................................................. (124,700)
Payments for other expenses.................................... (68,800)
Net cash provided by operating activities................ $211,216
Cash flows from investing activities
Receipt from sale of equipment................................ 105,350
Payment for store equipment.................................... (40,850)
Net cash provided by investing activities................ 64,500
Cash flows from financing activities
Payment to retire long-term notes payable.............. (215,000)
Receipt from borrowing on six-month note............. 43,000
Payment of cash dividends........................................ (25,800)
Net cash used in financing activities........................ (197,800)
Net increase in cash and cash equivalents................. $ 77,916
Cash and cash equivalents at prior year-end............. 43,000
Cash and cash equivalents at current year-end......... $120,916
2. One reason for the net loss was depreciation expense. Depreciation
expense is added to net income to adjust for the effects of a noncash
expense that was deducted in determining net income. It does not
involve an inflow of cash. Depreciation expense, along with a decrease
in accounts receivable and an increase in salaries payable, turned the
net loss into positive operating cash flow.
3. Differences between cash flow from operations and net income can be
caused by various items. The most important causes for investors are
differences arising from: (1) changes in management of operating
activities and (2) changes in revenue and expense recognition.
Part 2
Helping fund these cash outflows is $47,000 cash from issuance of stock.
Moreover, the company took on additional debt; namely, $62,500 in
long-term notes. The company must recognize that that the debt must
eventually be repaid with interest.
In summary, perhaps the company should review the wisdom of paying
cash dividends that are considerably larger than cash provided from
operations, especially when the payment also results in a deteriorating
cash position and when the company is taking on additional debt.
GEORGIA COMPANY
Statement of Cash Flows
For Year Ended December 31, 2009
Cash flows from operating activities
Net income..............................................................................
$120,575
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in accounts receivable........................................... (9,840)
Increase in inventory.................................................................(25,000)
Decrease in prepaid expenses............................................. 500
Decrease in accounts payable.............................................(70,035)
Depreciation expense..........................................................20,000
Loss on disposal of equipment............................................ 5,875
Net cash provided by operating activities................................ $ 42,075
GEORGIA COMPANY
Statement of Cash Flows
For Year Ended December 31, 2009
Cash flows from operating activities
Cash received from customers (Note 1).................... $574,660
Cash paid for merchandise (Note 2)........................... (376,035)
Cash paid for other expenses (Note 3)...................... (132,300)
Cash paid for income taxes........................................ (24,250)
Net cash provided by operating activities................ $ 42,075
Supporting calculations
(1) Sales - Increase in receivables = $584,500 - ($65,840 - $56,000) = $574,660
MEMPHIS CORPORATION
Statement of Cash Flows
For Year Ended December 31, 2009
Cash flows from operating activities
Net income........................................................................$127,000
Adjustments to reconcile net income to net
cash provided by operating activities
Increase in accounts receivable ($82,000 - $74,000).......... (8,000)
Increase in inventory ($620,000 - $525,000)....................... (95,000)
Increase in accounts payable ($160,000 - $96,000)............ 64,000
Increase in taxes payable ($22,000 - $19,000).................... 3,000
Depreciation expense..................................................... 57,000
Net cash provided by operating activities......................... $148,000
MEMPHIS CORPORATION
Spreadsheet for Statement of Cash Flows
For Year Ended December 31, 2009
December Analysis of Changes December
31, 2008 Debit Credit 31, 2009
Balance sheet--debits
Cash.................................................$ 137,000 $ 165,000
Accounts receivable.......................... 74,000 (b) $ 8,000 82,000
Merchandise inventory...................... 525,000 (c) 95,000 620,000
Equipment........................................ 240,000 (g) 105,000 345,000
$ 976,000 $1,212,000
Balance sheet--credits
Accum. depreciationEquip.............$ 102,000 (f) $ 57,000 $ 159,000
Accounts payable............................. 96,000 (d) 64,000 160,000
Income taxes payable........................ 19,000 (e) 3,000 22,000
Common stock, $2 par value............. 560,000 (h) 28,000 588,000
Paid-in capital in excess of
par value, common stock................ 159,000 (h) 42,000 201,000
Retained earnings............................. 40,000 (i) 85,000 (a) 127,000 82,000
$ 976,000 $1,212,000
Statement of cash flows
Operating activities
Net income........................................ (a) 127,000
Increase in accounts receivable........ (b) 8,000
Increase in merch. inventory............. (c) 95,000
Increase in accounts payable............ (d) 64,000
Increase in income tax payable.......... (e) 3,000
Depreciation expense........................ (f) 57,000
Investing activities
Payment for equipment..................... (g) 105,000
Financing activities
Issued common stock for cash.......... (h) 70,000
Paid cash dividends.......................... _______ (i) 85,000
$614,000 $614,000
MEMPHIS CORPORATION
Statement of Cash Flows
For Year Ended December 31, 2009
Cash flows from operating activities
Net income........................................................................$127,000
Adjustments to reconcile net income to net
cash provided by operating activities
Increase in accounts receivable..................................... (8,000)
Increase in inventory...................................................... (95,000)
Increase in accounts payable......................................... 64,000
Increase in taxes payable............................................... 3,000
Depreciation expense..................................................... 57,000
Net cash provided by operating activities......................... $148,000
MEMPHIS CORPORATION
Statement of Cash Flows
For Year Ended December 31, 2009
Cash flows from operating activities
Cash received from customers (Note 1).................... $1,786,000
Cash paid for merchandise (Note 2) .......................... (1,119,000)
Cash paid for other operating expenses .................. (500,000)
Cash paid for income taxes (Note 3) ......................... (19,000)
Net cash provided by operating activities ............... $148,000
Supporting calculations
RAWLING COMPANY
Cash Flows from Operating ActivitiesIndirect Method
For Year Ended December 31, 2009
Depreciation expense............................................................
$ 6,000
Decrease in accounts receivable.......................................... 10
Increase in merchandise inventory...................................... (22)
Decrease in accounts payable.............................................. (10)
Increase in salaries payable.................................................. 9
Increase in utilities payable................................................... 3
Decrease in prepaid insurance............................................. 1
Increase in prepaid rent......................................................... (2) 5,989
Net cash provided by operating activities............................ $ 8,989
RAWLING COMPANY
Cash Flows from Operating ActivitiesDirect Method
For Year Ended December 31, 2009
Supporting calculations
(1) Sales + Decrease in receivables = $48,600 + ($290 - $280) = $48,610
(3) Salaries expense - Increase in salaries payable = $9,000 - ($44 - $35) = $8,991
(4) Rent expense + Increase in prepaid rent = $4,500 + ($11 - $9) = $4,502
(5) Insurance expense - Decrease in prepaid insurance = $1,900 - ($14 - $13) = $1,899
(6) Utilities expense - Increase in utilities payable = $1,400 - ($11 - $8) = $1,397
Part 2
WILSON CORPORATION
Spreadsheet for Statement of Cash Flows
For Year Ended December 31, 2009
December Analysis of Changes December
31, 2008 Debit Credit 31, 2009
Balance sheet--debits
Cash................................................. $ 74,000 $ 49,400
Accounts receivable.......................... $
55,000 (b) 10,830 65,830
Merchandise inventory...................... 252,000 (c) 25,000 277,000
Prepaid expenses............................. 1,600 (d) $ 350 1,250
Equipment........................................ 107,500 (h) $97,500 (g) 46,500 158,500
$490,100 $551,980
Balance sheet--credits
Accum. depreciationEquip............. $ 46,000 (g) 29,375 (f) 20,000 $ 36,625
Accounts payable............................. 112,000 (e) 56,620 55,380
Short-term notes payable.................. 7,000 (j) 2,000 9,000
Long-term notes payable................... 48,250 (k) 50,750 (i) 72,500 70,000
Common stock, $5 par value............. 150,750 (l) 11,750 162,500
Paid-in capital in excess of
par value, common stock................ 0 (l) 35,250 35,250
Retained earnings............................. 126,100 (m) 59,000 (a) 116,125 183,225
$490,100 $551,980
Statement of cash flows
Operating activities
Net income........................................ (a) 116,125
Increase in accounts receivable......... (b) 10,830
Decrease in merch. inventory............ (c) 25,000
Decrease in prepaid expenses........... (d) 350
Decrease in accounts payable........... (e) 56,620
Depreciation expense........................ (f) 20,000
Loss on sale of equipment................ (g) 5,625
Investing activities
Receipt from sale of equipment......... (g) 11,500
Payment to purchase equipment....... (h) 25,000
Financing activities
Borrowed on short-term note............ (j) 2,000
Payment on long-term note............... (k) 50,750
Issued common stock for cash.......... (l) 47,000
Payments of cash dividends.............. (m) 59,000
WILSON CORPORATION
Statement of Cash Flows
For Year Ended December 31, 2009
Cash flows from operating activities
Net income..............................................................................
$116,125
Adjustments to reconcile net income to net
cash provided by operating activities
Increase in accounts receivable........................................... (10,830)
Increase in inventory.........................................................
(25,000)
Decrease in prepaid expenses............................................. 350
Decrease in accounts payable............................................. (56,620)
Depreciation expense..........................................................
20,000
Loss on disposal of equipment............................................5,625
Net cash provided by operating activities................................ $ 49,650
WILSON CORPORATION
Statement of Cash Flows
For Year Ended December 31, 2009
Cash flows from operating activities
Cash received from customers (Note 1).....................$ 574,170
Cash paid for merchandise (Note 2)............................ (366,620)
Cash paid for other expenses (Note 3)....................... (133,650)
Cash paid for income taxes........................................ (24,250)
Net cash provided by operating activities................. $ 49,650
Supporting calculations
(1) Sales - Increase in receivables = $585,000 - ($65,830 - $55,000) = $574,170
PRIUS COMPANY
Statement of Cash Flows
For Year Ended December 31, 2009
Cash flows from operating activities
Net income..................................................................... $132,000
Adjustments to reconcile net income to net
cash provided by operating activities
Increase in accounts receivable ($82,000 - $70,000)....... (12,000)
Increase in inventory ($605,000 - $515,000)..................... (90,000)
Increase in accounts payable ($173,000 - $119,000)........ 54,000
Increase in taxes payable ($20,000 - $17,000)................. 3,000
Depreciation expense.................................................. 55,000
Net cash provided by operating activities...................... $ 142,000
Investing activities
Payment for equipment..................... (g) 74,000
Financing activities
Issued common stock for cash.......... (h) 50,000
Paid cash dividends.......................... ________ (i) 85,000
$555,000 $555,000
PRIUS COMPANY
Statement of Cash Flows
For Year Ended December 31, 2009
Cash flows from operating activities
Net income..................................................................... $132,000
Adjustments to reconcile net income to net
cash provided by operating activities
Increase in accounts receivable................................... (12,000)
Increase in inventory.................................................... (90,000)
Increase in accounts payable....................................... 54,000
Increase in taxes payable............................................. 3,000
Depreciation expense.................................................. 55,000
Net cash provided by operating activities...................... $ 142,000
PRIUS COMPANY
Statement of Cash Flows
For Year Ended December 31, 2009
Cash flows from operating activities
Cash received from customers (Note 1) .................. $1,780,000
Cash paid for merchandise (Note 2) ......................... (1,123,000)
Cash paid for other operating expenses ................. (494,000)
Cash paid for income taxes (Note 3) ........................ (21,000)
Net cash provided by operating activities ............... $142,000
Supporting calculations
(1) Sales - Increase in receivables = $1,792,000 - ($82,000 - $70,000) = $1,780,000
KODAK COMPANY
Cash Flows from Operating ActivitiesIndirect Method
For Year Ended December 31, 2009
Depreciation expense............................................................
$64,000
Increase in accounts receivable........................................... (120)
Decrease in merchandise inventory..................................... 24
Decrease in accounts payable.............................................. (40)
Increase in salaries payable.................................................. 60
Increase in utilities payable................................................... 40
Decrease in prepaid insurance............................................. 8
Decrease in prepaid rent....................................................... 20 63,992
Net cash provided by operating activities............................ $103,992
KODAK COMPANY
Cash Flows from Operating ActivitiesDirect Method
For Year Ended December 31, 2009
Supporting calculations
(1) Sales - Increase in receivables = $312,000 - ($720 - $600) = $311,880
(2) Cost of
- Decrease in + Decrease in
goods sold inventory payables =
$144,000 - ($196 - $172) + ($520 - $480) = $144,016
SUCCESS SYSTEMS
Statement of Cash Flows (Indirect)
For Quarter Ended March 31, 2010
Cash flows from operating activities
Net income..............................................................................
$ 18,686
Adjustments to reconcile net income to net
cash provided by operating activities
Increase in accounts receivable ($22,720 - $5,668).................(17,052)
Increase in inventory ($704 - $0)............................................ (704)
Increase in computer supplies ($2,005 - $580) ......................(1,425)
Decrease in prepaid insurance ($1,665 - $1,110)..................... 555
Decrease in accounts payable ($1,100 - $0)...........................(1,100)
Increase in wages payable ($875 - $500) ............................... 375
Decrease in unearned computer service revenue................(1,500)
Depreciation expenseOffice Equipment............................. 400
Depreciation expenseComputer Equipment...................... 1,250
Net cash used by operating activities...................................... $ (515)
1. Best Buy uses the indirect method of reporting operating cash flows. We
know this because the operating activity section of the cash flow
statement starts with net income, and makes adjustments for items such
as depreciation and changes in current assets and liabilities.
2. In all three years, Best Buys cash flows from operating activities
exceeded the amount of cash dividends paid, as can be seen from the
table below:
($ millions) 2007 2006 2005
Cash provided by operating activities...... $1,762 $1,740 $1,981
Cash dividends paid................................... (174) (151) (137)
2. The cash flow on total assets ratio reflects the return on average assets
by using actual operating cash flows instead of net income. This return
calculation is not affected by the accounting constraints of recognition
and measurement of revenues and expenses. Instead, it is based solely
on operating cash flows (which has its own strengths and weaknesses).
Many other business actions are possible that would accelerate cash
receipts and/or delay cash payments.
I am pleased to hear your business is more profitable this year than last.
However, I have been thinking about what you said regarding the statement
of cash flows and have some thoughts as to why you found it confusing.
Please reconsider the value of the statement of cash flows for your
business decisions. If you wish to discuss this further, please call me.
3. The following table shows the net income (net loss) and the cash flows
from operations for J. Crew from 2005 through 2007. Over this three-
year period, J. Crew has generated more positive cash flows from
operations (relative to its net income and losses); indeed, its operating
cash flows have been consistently positive over the past three years.
120,977
Cash flows from operations................. 56,835 58,763
4. The largest cash outflow for investing was $45,931,000 for capital
expenditures.
The largest cash outflow for financing was $358,271,000 for redemption
of preferred stock.
Part 1
a. The reporting objective of the statement of cash flows is to provide
information about important cash inflows and outflows for business
decision makers. It answers specific questions such as:
How does a company obtain its cash?
Where does a company spend its cash?
What is the change in the cash balance?
b. The statement can be prepared using the direct method or the indirect
method for reporting cash flows from operating activities.
Similarities
Both methods report the same net cash flow from operating
activities.
Both methods classify cash flows into operating, financing, and
investing categories.
Both methods provide exactly the same information in the financing
and investing categories.
Both identify the change in cash, beginning cash, and ending cash.
Both are acceptable methods for financial reporting.
Differences
Cash flow from operating activities is determined differently. The
direct method determines all operating cash inflows and outflows,
and then subtracts total operating outflows from inflows. The
indirect method starts with net income and applies a series of
adjustments to reconcile this accrual basis number to a cash basis
number.
The direct method requires an extra section reconciling net income to
cash flows from operating activities.
The direct method is recommended by the FASB.
The indirect method is more widely used.
Part 2
b. Losses Gains
Explanation for (1): If inventory increases, the entity bought more than
was sold, so we add it. If inventory decreases, the entity bought less
than was sold, so we subtract it.
Explanation for (2): If Accounts Payable decreases, the entity paid for
more than the periods purchases, so we add it. If Accounts Payable
increases, the entity paid for less than the periods purchases, so we
subtract it.
c. Cash paid for wages and operating expenses = Wages and other
operating expenses [+ Increase in prepaid expenses, or, Decrease in
prepaid expenses] and [+ Decrease in accrued liabilities, or, Increase
in accrued liabilities].
Explanation: If prepaid expenses increase, the entity paid for more than
was incurred, so we add it. If prepaid expenses decrease, the entity paid
for less than was incurred, so we subtract it. Also, if the accrued
liabilities increase, the expense includes an amount not yet paid for, so
we subtract it. If the accrued liabilities decrease, the entity paid for
more than the periods expenses, so we add it.
d. Cash paid for interest and taxes = Interest and tax expense + Decrease
in related payable, or, Increase in related payable.
Explanation: If the related payable decreases, the entity paid for more
than was incurred, so we add it. If the related payable increases, the
entity paid for less than was incurred, so we subtract it.
1. It is common that small businesses must pay cash in advance for items
such as rent, advertising, supplies, and facilities expansion.
Consequently, those costs are usually recorded before revenues are
earned, and before those revenues are ultimately collected in cash. If
the business does not carefully plan, it is possible that it could show a
positive net income, but not be able to effectively operate because it has
little or no cash to pay its suppliers, creditors, and others to whom it
owes money.
Memorandum
3. Answer depends on the links visited and chosen for the report.
2. In the current year, DSGs ratio (5.1%) is lower than Best Buys (13.9%),
Circuit Citys (7.8%), and RadioShacks (14.7%) ratio. In the prior year
DSGs ratio (8.2%) is again lower than Best Buys (15.7%), Circuit Citys
(9.2%) and RadioShacks (15.4%) ratio.