16 - 1

PowerPoint Authors:Susan Coomer Galbreath, Ph.D., CPACharles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIACynthia J. Rooney, Ph.D., CPA

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Reporting the Statement of Cash Flows

Chapter 16

16 - 2

Operating ActivitiesC1

16 - 3

Investing ActivitiesC1

16 - 4

Financing ActivitiesC1

16 - 5

Noncash Investing and FinancingC1

Examples of Noncash Investing and Financing Activities

16 - 6

Format of the Statementof Cash Flows

16 - 7

Preparing the Statementof Cash Flows

P1

16 - 8

Analyzing the Cash AccountP1

The Cash account is a natural place to look for information about cash flows from operating, investing,

and financing activities.

16 - 9

Analyzing the Cash AccountP1

16 - 10

Analyzing Noncash AccountP1

A second approach to preparing the statement of cash flows is analyzing noncash accounts.

16 - 11

Information to Prepare the Statement

P1

Comparative Balance SheetsComparative

Balance SheetsCurrent

Income StatementCurrent

Income Statement

Additional InformationAdditional Information

Information to prepare the statement of cash flows usually comes from three sources:

16 - 12

Cash Flows from OperatingIndirect and Direct Methods of Reporting

The net cash amount provided by operating activities is identical under both the direct and indirect methods.

The net cash amount provided by operating activities is identical under both the direct and indirect methods.

Direct MethodDirect

Method

Indirect MethodIndirect Method

16 - 13

Global View

Reporting Cash Flows from OperatingBoth U.S. GAAP and IFRS permit the reporting of cash flows from operating activities using either the direct or indirect method. However, two notable differences include: 1.U.S. GAAP requires cash inflows from interest revenue and dividend revenue be classified as operating, whereas IFRS permits classification under operating or investing provided that this classification is consistently applied across periods.2.U.S. GAAP requires cash outflows for interest expense be classified as operating, whereas IFRS again permits classification under operating or financing provided that it is consistently applied across periods.

Reporting Cash Flows from Investing and FinancingU.S. GAAP and IFRS are broadly similar in computing and classifying cash flows from investing and financing activities. One notable exception is that U.S. GAAP requires cash outflows for income tax be classified as operating, whereas IFRS permits the splitting of those cash flows among operating, investing, and financing depending on the sources of that tax.

16 - 14

Analyzing Cash Sources and Uses

A1

Most managers stress the importance of understanding and predicting cash flows for business

decisions.

16 - 15

Used, along with income-based ratios, to assess company performance.

Used, along with income-based ratios, to assess company performance.

Cash flow on total assets =

Operating cash flows

Average total assets

Cash Flow on Total AssetsA1

16 - 16

P4

A spreadsheet, also called work sheet or working

paper, can help us organize the information

needed to prepare a statement of

cash flows.

Appendix 16A: Spreadsheet Preparation of the Statement of Cash Flows

16 - 17

Appendix 16B: Direct Method of Reporting Operating Cash Flows

P5

Adjust income statement accounts related to operating activities for changes in their related balance sheet accounts:

Framework for reporting cash receipts and cash payments

16 - 18

Appendix 16B: Direct Method of Reporting Operating Cash Flows

P5

16 - 19

End of Chapter 16