Beruflich Dokumente
Kultur Dokumente
Statement Preparation
Prepare
Financial Record
Statements Adjusting Entries
(Journalize & Post)
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Preparing the Income
Statement
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The Income Statement For the Year
Revenues
Expenses
Net earnings
A = L + OE
Cash (A) Accounts Receivable (A) Truck (A) Loan Payable (L) Capital Stock (OE)
BB 0 BB 0 BB 0 0 BB 0 BB
(1) 60,000 12,000 (3) (6a) 85,000 (3) 12.000 2,400 (10) (8) 10,000 40,000 (2) 60,000 (1)
(2) 40,000 10,000 (4) EB 85,000 EB 9,600 30,000 EB 60,000 EB
(6a) 315,000 235,000 (5)
140,000 (7) Inventory (A) Equipment (A) Accounts Payable (L) Retained Earnings (OE)
14,000 (8) BB 0 BB 0 0 BB 0 BB
990 (11)
EB 3,010 (5) 260,000 240,000 (6b) (4) 10,000 2,000 (10) 25,000 (5) COGS (6a) 240,000 400,000 (6a) Revenues
EB 20,000 EB 8,000 25,000 EB Op exp (7) 140,000
Int exp (8) 4,000
Journal Entry Wages Payable (L) Wage exp (9) 5,000
Dep exp (10) 4,400
0 BB
Tax exp (11) 990
5,000 (9) 5,610 EB
5,000 EB
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The Income Statement For the Year
Retained Earnings (OE) Revenues 400,000
0 BB Expenses
COGS 240,000
COGS (6) 240,000 400,000 (6) Revenues
Op exp (7) 140,000 Operating Expenses 140,000
Int exp (8) 4,000
Interest Expense 4,000
Wage exp (9) 5,000
Dep exp (10) 4,400 Wage Expense 5,000
Tax exp (11) 990
Depreciation Expense 4,400
5,610 EB Tax Expense 990
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The Balance Sheet at Assets:
Total assets
Liabilities:
Total liabilities
Owners’ equity:
A = L + OE
Cash (A) Accounts Receivable (A) Truck (A) Loan Payable (L) Capital Stock (OE)
BB 0 BB 0 BB 0 0 BB 0 BB
(1) 60,000 12,000 (3) (6a) 85,000 (3) 12.000 2,400 (10) (8) 10,000 40,000 (2) 60,000 (1)
(2) 40,000 10,000 (4) EB 85,000 EB 9,600 30,000 EB 60,000 EB
(6a) 315,000 235,000 (5)
140,000 (7) Inventory (A) Equipment (A) Accounts Payable (L) Retained Earnings (OE)
14,000 (8) BB 0 BB 0 0 BB 0 BB
990 (11)
EB 3,010 (5) 260,000 240,000 (6b) (4) 10,000 2,000 (10) 25,000 (5) COGS (6a) 240,000 400,000 (6a) Revenues
EB 20,000 EB 8,000 25,000 EB Op exp (7) 140,000
Int exp (8) 4,000
Journal Entry Wages Payable (L) Wage exp (9) 5,000
Dep exp (10) 4,400
0 BB
Tax exp (11) 990
5,000 (9) 5,610 EB
5,000 EB
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The Balance Sheet at Assets:
EB 3,010
Total owners’ equity
Total liabilities and owners’ equity
EB 85,000
Total liabilities
Owners’ equity:
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The Balance Sheet at Assets:
Liabilities:
Total liabilities
Owners’ equity:
A = L + OE
Cash (A) Accounts Receivable (A) Truck (A) Loan Payable (L) Capital Stock (OE)
BB 0 BB 0 BB 0 0 BB 0 BB
(1) 60,000 12,000 (3) (6a) 85,000 (3) 12.000 2,400 (10) (8) 10,000 40,000 (2) 60,000 (1)
(2) 40,000 10,000 (4) EB 85,000 EB 9,600 30,000 EB 60,000 EB
(6a) 315,000 235,000 (5)
140,000 (7) Inventory (A) Equipment (A) Accounts Payable (L) Retained Earnings (OE)
14,000 (8) BB 0 BB 0 0 BB 0 BB
990 (11)
EB 3,010 (5) 260,000 240,000 (6b) (4) 10,000 2,000 (10) 25,000 (5) COGS (6a) 240,000 400,000 (6a) Revenues
EB 20,000 EB 8,000 25,000 EB Op exp (7) 140,000
Int exp (8) 4,000
Journal Entry Wages Payable (L) Wage exp (9) 5,000
Dep exp (10) 4,400
0 BB
Tax exp (11) 990
5,000 (9) 5,610 EB
5,000 EB
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The Balance Sheet at Assets:
Liabilities:
Accounts payable
Wages payable
Loan payable
Total liabilities
Owners’ equity:
Liabilities:
Accounts payable 25,000
Wages payable 5,000
Loan payable 30,000
Total liabilities 60,000
Owners’ equity:
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The Garden Spot: With ending balances
A = L + OE
Cash (A) Accounts Receivable (A) Truck (A) Loan Payable (L) Capital Stock (OE)
BB 0 BB 0 BB 0 0 BB 0 BB
(1) 60,000 12,000 (3) (6a) 85,000 (3) 12.000 2,400 (10) (8) 10,000 40,000 (2) 60,000 (1)
(2) 40,000 10,000 (4) EB 85,000 EB 9,600 30,000 EB 60,000 EB
(6a) 315,000 235,000 (5)
140,000 (7) Inventory (A) Equipment (A) Accounts Payable (L) Retained Earnings (OE)
14,000 (8) BB 0 BB 0 0 BB 0 BB
990 (11)
EB 3,010 (5) 260,000 240,000 (6b) (4) 10,000 2,000 (10) 25,000 (5) COGS (6a) 240,000 400,000 (6a) Revenues
EB 20,000 EB 8,000 25,000 EB Op exp (7) 140,000
Int exp (8) 4,000
Journal Entry Wages Payable (L) Wage exp (9) 5,000
Dep exp (10) 4,400
0 BB
Tax exp (11) 990
5,000 (9) 5,610 EB
5,000 EB
Owners’ equity:
Capital stock
Retained earnings
Total owners’ equity
Total liabilities and owners’ equity
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The Balance Sheet at Assets:
Liabilities:
Accounts payable 25,000
Wages payable 5,000
Loan payable 30,000
Total liabilities 60,000
Owners’ equity:
Capital stock 60,000
Retained earnings 5,610
Total owners’ equity 65,610
Total liabilities and owners’ equity 125,610
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Revisiting the Financial
Statement Framework
Income Statement
Balance Sheet Revenues Balance Sheet
A L A L
-Expenses
Cash Cash
=Net Earnings
OE OE
RE RE
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A Managerial Approach to
Recording Transactions
Expenses
Liabilities:
Total liabilities
Owners’ equity:
Capital stock +60,000
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Purchased inventory throughout the year
costing $260,000, $235,000 of which was Assets:
paid in cash and $25,000 was purchased Cash -235,000
on account.
Inventory +260,000
PP&E
Revenues Total assets
Expenses
Liabilities:
Accounts payable +25,000
Loan payable
Total liabilities
Owners’ equity:
Capital stock
Expenses
Liabilities:
Accounts payable
Loan payable
Total liabilities
Owners’ equity:
Capital stock
Retained earnings +400,000
Total owners’ equity
Net earnings +400,000
Total liabilities and owners’ equity
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Sales of $400,000, $315,000 of which
were cash sales and $85,000 of which Assets:
were sales on account. The inventory sold Cash
had originally cost a total of $240,000. Accounts receivable
Inventory -240,000
PP&E
Revenues Total assets
Expenses
Liabilities:
COGS +240,000
Accounts payable
Loan payable
Total liabilities
Owners’ equity:
Capital stock
Retained earnings -240,000
Total owners’ equity
Net earnings -240,000
Total liabilities and owners’ equity
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Mary Jo and Josh invested $60,000 in the Assets:
company in exchange for shares of Cash +60,000
common stock.
Expenses
Liabilities:
Total liabilities
Owners’ equity:
Capital stock +60,000
Assets:
Cash 60,000
Expenses
Liabilities:
Total liabilities
Owners’ equity:
Capital stock 60,000
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Assets:
Obtained a $40,000 loan from bank. Cash +40,000 60,000
Expenses
Liabilities:
Owners’ equity:
Capital stock 60,000
Assets:
Cash 100,000
Expenses
Liabilities:
Owners’ equity:
Capital stock 60,000
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Assets:
Purchased a truck for $12,000 cash. Cash -12,000 100,000
PP&E +12,000
Revenues Total assets 100,000
Expenses
Liabilities:
Owners’ equity:
Capital stock 60,000
Assets:
Cash 88,000
PP&E 12,000
Revenues Total assets 100,000
Expenses
Liabilities:
Owners’ equity:
Capital stock 60,000
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Assets:
Purchased equipment for $10,000 cash. Cash -10,000 88,000
Expenses
Liabilities:
Owners’ equity:
Capital stock 60,000
Assets:
Cash 78,000
PP&E 22,000
Revenues Total assets 100,000
Expenses
Liabilities:
Owners’ equity:
Capital stock 60,000
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Purchased inventory throughout the year
costing $260,000, $235,000 of which was Assets:
paid in cash and $25,000 was purchased Cash -235,000 78,000
on account.
Inventory +260,000
PP&E 22,000
Revenues Total assets 100,000
Expenses
Liabilities:
Accounts payable +25,000
Owners’ equity:
Capital stock 60,000
Assets:
Cash -157,000
Inventory 260,000
PP&E 22,000
Revenues Total assets 125,000
Expenses
Liabilities:
Accounts payable 25,000
Owners’ equity:
Capital stock 60,000
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Sales of $400,000, $315,000 of which
were cash sales and $85,000 of which Assets:
were sales on account. The inventory sold Cash +315,000 -157,000
had originally cost a total of $240,000. Accounts receivable +85,000
Inventory 260,000
PP&E 22,000
Revenues +400,000 Total assets 125,000
Expenses
Liabilities:
Accounts payable 25,000
Owners’ equity:
Capital stock 60,000
Retained earnings +400,000 0
Total owners’ equity 60,000
Net earnings +400,000
Total liabilities and owners’ equity 125,000
Expenses
Liabilities:
COGS +240,000
Accounts payable 25,000
Owners’ equity:
Capital stock 60,000
Retained earnings -240,000 400,000
Total owners’ equity 460,000
Net earnings -240,000 400,000
Total liabilities and owners’ equity 525,000
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Assets:
Cash 158,000
Accounts receivable 85,000
Inventory 20,000
PP&E 22,000
Revenues 400,000 Total assets 285,000
Expenses
Liabilities:
COGS 240,000
Accounts payable 25,000
Owners’ equity:
Capital stock 60,000
Retained earnings 160,000
Total owners’ equity 220,000
Net earnings 160,000
Total liabilities and owners’ equity 285,000
Expenses
Liabilities:
COGS 240,000
Accounts payable 25,000
Operating Expenses + 140,000
Loan payable 40,000
Total liabilities 65,000
Owners’ equity:
Capital stock 60,000
Retained earnings - 140,000 160,000
Total owners’ equity 220,000
Net earnings - 140,000 160,000
Total liabilities and owners’ equity 285,000
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Assets:
Cash 18,000
Accounts receivable 85,000
Inventory 20,000
PP&E 22,000
Revenues 400,000 Total assets 145,000
Expenses
Liabilities:
COGS 240,000
Accounts payable 25,000
Operating Expenses 140,000
Loan payable 40,000
Total liabilities 65,000
Owners’ equity:
Capital stock 60,000
Retained earnings 20,000
Total owners’ equity 80,000
Net earnings 20,000
Total liabilities and owners’ equity 145,000
Expenses
Liabilities:
COGS 240,000
Accounts payable 25,000
Operating Expenses 140,000
Owners’ equity:
Capital stock 60,000
Retained earnings - 4,000 20,000
Total owners’ equity 80,000
Net earnings - 4,000 20,000
Total liabilities and owners’ equity 145,000
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Assets:
Cash 4,000
Accounts receivable 85,000
Inventory 20,000
PP&E 22,000
Revenues 400,000 Total assets 131,000
Expenses
Liabilities:
COGS 240,000
Accounts payable 25,000
Operating Expenses 140,000
Owners’ equity:
Capital stock 60,000
Retained earnings 16,000
Total owners’ equity 76,000
Net earnings 16,000
Total liabilities and owners’ equity 131,000
Expenses
Liabilities:
COGS 240,000
Accounts payable 25,000
Operating Expenses 140,000 Wages payable +5,000
Owners’ equity:
Capital stock 60,000
Retained earnings - 5,000 16,000
Total owners’ equity 76,000
Net earnings - 5,000 16,000
Total liabilities and owners’ equity 131,000
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Assets:
Cash 4,000
Accounts receivable 85,000
Inventory 20,000
PP&E 22,000
Revenues 400,000 Total assets 131,000
Expenses
Liabilities:
COGS 240,000
Accounts payable 25,000
Operating Expenses 140,000 Wages payable 5,000
Owners’ equity:
Capital stock 60,000
Retained earnings 11,000
Total owners’ equity 76,000
Net earnings 11,000
Total liabilities and owners’ equity 131,000
Expenses
Liabilities:
COGS 240,000
Accounts payable 25,000
Operating Expenses 140,000 Wages payable 5,000
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Assets:
Cash 4,000
Accounts receivable 85,000
Inventory 20,000
PP&E 17,600
Revenues 400,000 Total assets 126,600
Expenses
Liabilities:
COGS 240,000
Accounts payable 25,000
Operating Expenses 140,000 Wages payable 5,000
Assets:
Paid $990 in income taxes. Cash - 990 4,000
Accounts receivable 85,000
Inventory 20,000
PP&E 17,600
Revenues 400,000 Total assets 126,600
Expenses
Liabilities:
COGS 240,000
Accounts payable 25,000
Operating Expenses 140,000 Wages payable 5,000
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Assets:
Cash 3,010
Accounts receivable 85,000
Inventory 20,000
PP&E 17,600
Revenues 400,000 Total assets 125,610
Expenses
Liabilities:
COGS 240,000
Accounts payable 25,000
Operating Expenses 140,000 Wages payable 5,000
Introduction to the
Statement of Cash Flows
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The Statement of Cash Flows
Income Statement
Revenues
OE Change in Cash OE
RE Statement of Cash Flow Dividends RE
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The Statement of Cash Flows
Cash Inflows Cash Outflows
Operating • Collections from customers • Payment to suppliers
Activities • Receipt of dividends and • Payment to employees
interest on investments • Payment for other operating items
• Payment of interest on debt
• Payment of taxes
Investing • Sale of PP&E • Purchase of PP&E
Activities • Sale of intangible assets • Purchase of intangible assets
• Sale of investments • Purchase of investments
• Divestiture of businesses • Acquisition of businesses
Financing • Issuance of stock • Repurchase of stock
Activities • Issuance of bonds • Retirement of bonds
• Taking out a loan • Repayment of loan principal
• Payment of dividends
Closing Entries
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The Accounting Cycle
Analyze Events
& Transactions
Prepare
Financial Record
Statements Adjusting Entries
(Journalize & Post)
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Two Methods of Preparation
DIRECT METHOD INDIRECT METHOD
Operating Activities: Operating Activities:
Net income
[Directly lists cash receipts from customers, + Depreciation
cash payments to suppliers, etc.] +/- Other adjustments
+/- Decr/Incr in operating assets and liabilities
CFO CFO
Investing Activities: Investing Activities:
… …
CFI CFI
Financing Activities: IDENTICAL Financing Activities:
… …
CFF CFF
Change in Cash Change in Cash
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Assets: Beg End
Cash 0 3,010
Operating Activities: Accounts receivable 0 85,000
Net income
Inventory 0 20,000
+ depreciation PP&E 0 17,600
- Increase in AR
- Increase in inventory Total assets 0 125,610
- Increase in AP
- Increase in wages payable
CFO Liabilities:
Accounts payable 0 25,000
Investing Activities:
- Purchase of truck Wages payable 0 5,000
- Purchase of equipment Loan payable 0 30,000
CFI Total liabilities 0 60,000
Financing Activities:
- Proceeds from issuing stock Owners’ equity:
- Proceeds from loan
- Repayment of loan principal Capital stock 0 60,000
CFF Retained earnings 0 5,610
ΔCash Total owners’ equity 0 65,610
Total liabilities and owners’ equity 0 125,610
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Financial Statement Framework
Beginning End
of Period of Period
Income Statement
Revenues
OE Change in Cash OE
RE Statement of Cash Flow Dividends RE
Operating Activities:
Net income $xxx
:
ΔAccounts receivable xxx
:
CFO $xxx
Statement of Investing Activities:
Cash Flow : xxx
CFI $xxx
Financing Activities:
: xxx
CFF $xxx
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Direct Method Indirect Method
Revenues
less:
COGS
Wage expense
Depreciation expense
Gain/loss on sale
Etc.
Indirect Method
Illustrative Examples Revenues
less:
COGS
Wage expense
Revenue recognized on the income Depreciation expense
statement for the period totaled Gain/loss on sale
Etc.
$200,000; 25% of sales were on
Operating Activities:
account. The beginning and ending
Net income
accounts receivable balances found on :
the balance sheets were $25,000 and ΔAccounts receivable
:
$20,000, respectively. CFO
Investing Activities:
:
CFI
Financing Activities:
:
CFF
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Indirect Method
Illustrative Examples Revenues
less:
COGS
Wage expense
Cost of goods sold for the period was Depreciation expense
$135,000. The balance in the inventory Gain/loss on sale
Etc.
account on the balance sheet at the
Operating Activities:
beginning of the period was $40,000. Of
Net income
the $145,000 total inventory purchased :
during the period, $29,000 was on ΔAccounts receivable
:
account. A liability was booked directly to CFO
accounts payable, an account that
Investing Activities:
related only to inventory transactions. Its :
beginning balance on the balance sheet CFI
Indirect Method
Illustrative Examples Revenues
less:
COGS
Wage expense
Wage expense for the period was Depreciation expense
$50,000. The beginning and ending Gain/loss on sale
Etc.
balances in the wages payable account
Operating Activities:
on the balance sheets were $10,000 and
Net income
$5,000, respectively. :
ΔAccounts receivable
:
CFO
Investing Activities:
:
CFI
Financing Activities:
:
CFF
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Indirect Method
Illustrative Examples Revenues
less:
COGS
Wage expense
Stock investments, purchased in a prior Depreciation expense
period for $2,000, were sold during the Gain/loss on sale
Etc.
period for $3,000. The total beginning
Operating Activities:
balance in the investment account on
Net income
the balance sheet was $20,000. :
ΔAccounts receivable
:
CFO
Investing Activities:
:
CFI
Financing Activities:
:
CFF
Indirect Method
Illustrative Examples Revenues
less:
COGS
Wage expense
The company purchased equipment Depreciation expense
during the period for $5,000 cash. Gain/loss on sale
Etc.
Including the depreciation on this new
Operating Activities:
equipment, the company recording
Net income
$6,000 in depreciation expense during :
the period. The company sold no ΔAccounts receivable
:
equipment during the period. The CFO
beginning and ending balances in the
Investing Activities:
equipment account on the balance :
sheets were $18,000 and $17,000, CFI
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Indirect Method
Illustrative Examples Revenues
less:
COGS
Wage expense
During the period the company issued Depreciation expense
stock for $10,000 cash, paid $3,000 in Gain/loss on sale
Etc.
dividends, and borrowed $2,500 for
Operating Activities:
three years from the bank (on the last
Net income
day of the year). The beginning balances :
in the common stock account, retained ΔAccounts receivable
:
earnings account, and long-term debt CFO
account on the balance sheet were
Investing Activities:
$50,000, $100,000, and $0, :
respectively. CFI
Financing Activities:
:
CFF
Summary
• 2 methods of preparation: Direct Method and Indirect Method
• Both methods
Are identical except for the Operating Activities section
Yield the same CFO, even though it is arrived at differently
Yield the same CFI and CFF
Yield the same total cash flow
• Conceptually, the indirect method begins with net income and
makes adjustments based on the difference between accrual
accounting net income and operating cash flows.
• Let’s take this logic to our Garden Spot case
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TGS Year 1: Using the Direct
Method to Prepare the SCF
Direct Method
The Garden Spot:
SCF Using Direct Method Operating Activities:
- Collections from customers 315,000
- Payment to suppliers (235,000)
- Payment for operating items (140,000)
Cash (A) - Payment of interest on loan (4,000)
- Payment of taxes (990)
BB 0 CFO (64,990)
Issued stock (1) 60,000 12,000 (3) Purchased Truck Investing Activities:
Took out loan (2) 40,000 10,000 (4) Purchased equipment - Purchase of truck (12,000)
Cash sales (6) 315,000 235,000 (5) Paid suppliers - Purchase of equipment (10,000)
140,000 (7) Paid operating items CFI (22,000)
14,000 (8) Made loan payment
Financing Activities:
990 (11) Paid taxes
- Proceeds from issuing stock 60,000
- Proceeds from loan 40,000
EB 3,010 - Repayment of loan principal (4,000)
CFF 96,000
ΔCash 3,010
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TGS Year 1: Using the Indirect
Method to Prepare the SCF
Operating Activities:
Net income 5,610
:
ΔAccounts receivable
:
CFO
Investing Activities:
:
CFI
Financing Activities:
:
CFF
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The Garden Spot:
SCF Using Indirect Method
Operating Activities:
Net income 5,610
Revenues 400,000
less: (240,000) + depreciation 4,400
COGS (140,000) - Increase in AR (85,000)
Wage expense (4,000) - Increase in inventory (20,000)
Depreciation expense (5,000) - Increase in AP 25,000
Gain/loss on sale (4,400) - Increase in wages payable 5,000
Etc. (990) CFO (64,990)
Investing Activities:
Net income 5,610 - Purchase of truck (12,000)
- Purchase of equipment (10,000)
CFI (22,000)
Financing Activities:
- Proceeds from issuing stock 60,000
- Proceeds from loan 40,000
- Repayment of loan principal (10,000)
CFF 90,000
ΔCash 3,010
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course. Please do not share or distribute it. 39
The Direct and Indirect
Methods: A Summary
Summary
• 2 methods of preparation: Direct Method and Indirect
Method
• Both methods
Are identical except for the Operating Activities section
Yield the same CFO, even though it is arrived at differently
Yield the same CFI and CFF
Yield the same total cash flow
• Conceptually, the indirect method begins with net
income and makes adjustments based on the difference
between accrual accounting net income and operating
cash flows.
This slide handout was created by the University of Virginia Darden School of Business and is provided to support your learning while taking this
course. Please do not share or distribute it. 40