STATEMENT OF CASH

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 STATEMENT OF CASH
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THE CONCEPT OF CASH FLOW
STATEMENTS
A flow statement explains the changes that
took place in a balance sheet account or group
of accounts during the period between the
dates of two balance sheet snapshots. The
income statement (and related statement of
retained earnings) is a flow statement. It
explains changes that occurred in the retained
earnings account by summarizing the
increases (revenues) and decreases (expenses
and dividends) in retained earnings during the
accounting period
STATEMENT OF CASH
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PURPOSE OF THE CASH FLOW STATEMENT

 To provide information about the

cash flows associated with the
period’s operations and also
about the entity’s investing and
financing activities during the
period.
 STATEMENT OF CASH
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SOURCES AND USES OF CASH

 SOURCES – activities that

generate cash
 USES – activities that
involve spending cash
 STATEMENT OF CASH
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MAJOR TYPES OF CASH SOURCES AND USES

SOURCES USES

1. Operations 1. Cash dividends

2. New borrowings 2. Repayment of borrowings
3. New stock issues 3. Repurchase of stock
4. Sale of property, 4. Purchase of property,
plant & equipment plant & equipment
5. Sale of other non- 5. Purchase of other non-
current assets current assets
CASH FLOWS PRESENTED IN SOURCES AND USES FORMAT

FAIRWAY CORPORATION
Sources and Uses of Cash
For the year ended December 31, 19x1
(dollars in thousands)

Amount Percent
Sources of cash:
Cash generated by operations $228 30.1
Short-term borrowings 15 2.0
Long-term debt 375 49.5
Issuance of common stock 44 5.8
Proceeds from disposal of equipt. 20 2.6
Sale of investment securities 75 9.9
Total sources of cash $757 100.0
CASH FLOWS PRESENTED IN SOURCES AND USES FORMAT

FAIRWAY CORPORATION
Sources and Uses of Cash
For the year ended December 31, 19x1
(dollars in thousands)

Amount Percent
Uses of cash:
Acquisition of plant and equipt. $500 66.1
Purchase of investment securities 25 3.3
Dividends paid 60 7.9
Repayment of short-term debt 36 4.8
Repayment of long-term debt 40 5.3
Total uses of cash 661 87.3
Net Increase in cash $ 96 12.7
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 3 MAJOR CATEGORIES OF
CASH FLOW STATEMENT

o OPERATING ACTIVITIES – are defined to be all

transactions that are not investing or financing
activities.

o INVESTING ACTIVITIES – include acquiring

long-lived assets such as property, plant,
equipment and investments in securities that
are not cash equivalent.
o FINANCING ACTIVITIES – include borrowing
of cash and the issuance of equity securities.
 DIRECT METHOD OF REPORTING
CASH FLOWS FROM OPERATING
ACTIVITIES

Cash flows from operating activities:

Cash received from customers $ 3,103,000.00
Dividends and interest from customers 19,000.00
Cash provided from operating activities 3,122,000.00
Cash paid to suppliers and employees 2,729,000.00
Interest paid 67,000.00
Income taxes paid 98,000.00
Cash disbursed from operating activities 2,894,000.00
Net cash flow from operating activities $ 228,000.00
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 OPERATING CASH
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INDIRECT (RECONCILIATION) METHOD CALCULATIONS
Net income is adjusted for all non cash revenues and
expenses to convert it to cash flow from operations

Non cash revenues and expenses:

• Depreciation
• Deferred taxes
• Accounts receivables
• Inventories
• Prepaid expenses
• Accounts payable
• Gains or losses
 CALCULATING OPERATING CASH
FLOW FROM NET INCOME

Depreciation Expense Decrease in deferred taxes

Increase in deferred taxes Increase in accounts receivable
Decrease in accounts receivable Increase in Inventories Net cash
Net Decrease in inventories Increase in prepaid expenses
Income + Decrease in prepaid expenses
- Decrease in payables =
Flow from
Operating
Increase in payables * Gain on disposal Activities
Loss on disposal
END OF PRESENTATION