Managerial Accounting for Business Professionals ACC 330

UNIT UNIT 88

Dr. Doug Letsch

• Review of Exercise 11-16

• Statement of C

ash Flows

• Questions

EXERCISE 11-16 REVIEWEXERCISE 11-16 REVIEWEXERCISE 11-16 REVIEWEXERCISE 11-16 REVIEW

STATEMENT OF CASH FLOWS

A difficult statement made easy!

http://www.youtube.com/watch?v=JGcbsj6FN6c

SCF-TIMING OF THE FINANCIAL STATEMENTSSCF-TIMING OF THE FINANCIAL STATEMENTSSCF-TIMING OF THE FINANCIAL STATEMENTSSCF-TIMING OF THE FINANCIAL STATEMENTS

• How are these statements created?

AT 12-31-11

Balance

Sheet

Balance

Sheet

For the year ended 12-31-12

AT 12-31-12

Balance Sheet

Balance Sheet

Income Statement

Stmt of SE Equity

Stmt of Cash Flows

SCF-TIMING OF THE FINANCIAL STATEMENTSSCF-TIMING OF THE FINANCIAL STATEMENTSSCF-TIMING OF THE FINANCIAL STATEMENTSSCF-TIMING OF THE FINANCIAL STATEMENTS

Statement of Retained Earnings

Retained earnings, beginning balance

$$,$$$

Plus: Net income $$,$$$

Less: Dividends ($,$$$)

Retained earnings, ending balance $$,$$$

Balance Sheet

Current assets $$,$$$ Liabilities $$,$$$

Plant assets $$,$$$ Common stock $$,$$$

Other assets $$,$$$ Retained earnings $$,$$$

Total assets$$$,$$

$Total liabilities & stockholders’ equity $$$,$$$

Income Statement

                        Income Statement    Year Ended July 31, 2012   Revenues:               Service revenue        $      102,100    Expenses:               Salary expense      $         39,800        Rent expense                    10,300        Insurance expense                    3,500        Interest expense                    3,300        Supplies expense                    2,800        Depreciation expense                    1,700              61,400    Income before tax                     40,700    Income tax expense                       6,500    Net income          $         34,200                    Statement of Retained Earnings  Year Ended July 31, 2012 Retained earnings, December 31, 20X5      $           5,000  Add: Net income          $         34,200               $         39,200    Less: Dividends                   (21,000)   Retained earnings, December 31, 20X6      $         18,200               

SCF-TIMING OF THE FINANCIAL STATEMENTSSCF-TIMING OF THE FINANCIAL STATEMENTSSCF-TIMING OF THE FINANCIAL STATEMENTSSCF-TIMING OF THE FINANCIAL STATEMENTS

                   Statement of Retained Earnings  Year Ended July 31, 2012 Retained earnings, December 31, 20X5      $           5,000  Add: Net income          $         34,200               $         39,200    Less: Dividends                   (21,000)   Retained earnings, December 31, 20X6      $         18,200                             

 Balance SheetJuly 31, 2012

ASSETS   LIABILITIESCash      $           2,000    Accounts payable  $           3,400 Accounts receivable               9,400    Interest payable                   200 Supplies                   2,400    Unearned service revenue                   700 Prepaid rent                 1,200    Income tax payable               2,000 Equipment  $           36,600      Note payable             18,900 Less: Accum.       Total liabilities  $         25,200    deprec.                 (4,200)             32,400         

         STOCKHOLDERS' EQUITY         Common stock               4,000          Retained earnings             18,200          Total stockholders' equity             22,200                            Total liabilities and    

Total assets    $        47,400      stockholders' equity  $         47,400                   

SCF-TIMING OF THE FINANCIAL STATEMENTSSCF-TIMING OF THE FINANCIAL STATEMENTSSCF-TIMING OF THE FINANCIAL STATEMENTSSCF-TIMING OF THE FINANCIAL STATEMENTS

SCF - CASH FLOW CATEGORIESSCF - CASH FLOW CATEGORIESSCF - CASH FLOW CATEGORIESSCF - CASH FLOW CATEGORIES

SCF - RELATIONSHIP TO BALANCE SHEETSCF - RELATIONSHIP TO BALANCE SHEETSCF - RELATIONSHIP TO BALANCE SHEETSCF - RELATIONSHIP TO BALANCE SHEET

Current assetsCurrent assets Current liabilitiesCurrent liabilities

Long-term assetsLong-term assets

Long-term liabilities

Long-term liabilities

Owners’ equityOwners’ equity

Operating cash flows

Operating cash flows

Financing cash flowsInvesting

cash flows

SCF-THE SECRET TO COMPUTATION –STEP 1SCF-THE SECRET TO COMPUTATION –STEP 1SCF-THE SECRET TO COMPUTATION –STEP 1SCF-THE SECRET TO COMPUTATION –STEP 1

2011 2012 AssetsCurrent assets: Cash $25,000 $35,000 Accounts receivable 10,000 12,000Inventory 16,000 15,000

Total current assets 51,000 62,000Long Term AssetsMachinery and Equipment 100,000 120,000Less: Accumulated depreciation -40,000 -45,000

Total long term assets 60,000 75,000Total assets $111,000 $137,000

Liabilities and Shareholders' Equity

Current liabilities: 2011 2012Accounts payable $20,000 $21,500 Salaries payable 12,000 10,000

Total current liabilities 32,000 31,500Long Term liabilities:Notes payable $10,000 $9,000 Bonds payable 8,500 8,000

Total long term liabilities 18,500 17,000 Total liabilities 50,500 48,500

Shareholders’ equity:Common stock $50,000 $50,000 Retained earnings 10,500 38,500

Total shareholders’ equity 60,500 88,500Total liabilities and shareholders’ equity $111,000 $137,000

SCF-THE SECRET TO COMPUTATION–STEP 2SCF-THE SECRET TO COMPUTATION–STEP 2SCF-THE SECRET TO COMPUTATION–STEP 2SCF-THE SECRET TO COMPUTATION–STEP 2

2011 2012 AssetsCurrent assets: Cash $25,000 $35,000 Accounts receivable 10,000 12,000Inventory 16,000 15,000

Total current assets 51,000 62,000Long Term AssetsMachinery and Equipment 100,000 120,000Less: Accumulated depreciation -40,000 -45,000

Total long term assets 60,000 75,000Total assets $111,000 $137,000

Liabilities and Shareholders' Equity

Current liabilities: 2011 2012Accounts payable $20,000 $21,500 Salaries payable 12,000 10,000

Total current liabilities 32,000 31,500Long Term liabilities:Notes payable $10,000 $9,000 Bonds payable 8,500 8,000

Total long term liabilities 18,500 17,000 Total liabilities 50,500 48,500

Shareholders’ equity:Common stock $50,000 $50,000 Retained earnings 10,500 38,500

Total shareholders’ equity 60,500 88,500Total liabilities and shareholders’ equity $111,000 $137,000

Change2011-2012

($10,000)($2,000)$1,000

($20,000)$5,000

2012-2011

$1,500 ($2,000)

($1,000)($500)

$28,000

$0

SCF-THE SECRET TO COMPUTATION–STEP 2SCF-THE SECRET TO COMPUTATION–STEP 2SCF-THE SECRET TO COMPUTATION–STEP 2SCF-THE SECRET TO COMPUTATION–STEP 2

2011 2012 AssetsCurrent assets: Cash $25,000 $35,000 Accounts receivable 10,000 12,000Inventory 16,000 15,000

Total current assets 51,000 62,000Long Term AssetsMachinery and Equipment 100,000 120,000Less: Accumulated depreciation -40,000 -45,000

Total long term assets 60,000 75,000Total assets $111,000 $137,000

Liabilities and Shareholders' Equity

Current liabilities: 2011 2012Accounts payable $20,000 $21,500 Salaries payable 12,000 10,000

Total current liabilities 32,000 31,500Long Term liabilities:Notes payable $10,000 $9,000 Bonds payable 8,500 8,000

Total long term liabilities 18,500 17,000 Total liabilities 50,500 48,500

Shareholders’ equity:Common stock $50,000 $50,000 Retained earnings 10,500 38,500

Total shareholders’ equity 60,500 88,500Total liabilities and shareholders’ equity $111,000 $137,000

Change2011-2012

($2,000)$1,000

($20,000)$5,000

2012-2011

$1,500 ($2,000)

($1,000)($500)

$28,000

($10,000)

Note!

SCF-THE SECRET TO COMPUTATION–STEP 3SCF-THE SECRET TO COMPUTATION–STEP 3SCF-THE SECRET TO COMPUTATION–STEP 3SCF-THE SECRET TO COMPUTATION–STEP 3

2011 2012 AssetsCurrent assets: Cash $25,000 $35,000 Accounts receivable 10,000 12,000Inventory 16,000 15,000

Total current assets 51,000 62,000Long Term AssetsMachinery and Equipment 100,000 120,000Less: Accumulated depreciation -40,000 -45,000

Total long term assets 60,000 75,000Total assets $111,000 $137,000

Liabilities and Shareholders' Equity

Current liabilities: 2011 2012Accounts payable $20,000 $21,500 Salaries payable 12,000 10,000

Total current liabilities 32,000 31,500Long Term liabilities:Notes payable $10,000 $9,000 Bonds payable 8,500 8,000

Total long term liabilities 18,500 17,000 Total liabilities 50,500 48,500

Shareholders’ equity:Common stock $50,000 $50,000 Retained earnings 10,500 38,500

Total shareholders’ equity 60,500 88,500Total liabilities and shareholders’ equity $111,000 $137,000

Change2011-2012

($10,000)($2,000)$1,000

($20,000)$5,000

2012-2011

$1,500 ($2,000)

($1,000)($500)

$28,000

$0

Cash Change

 Decr-OPIncr-OP

  

Decr-INIncr-OP

  

  

Incr-OPDecr-OP

  

Decr-FINDecr-FIN

    

Incr-OP 

$10,000

SCF-THE SECRET TO COMPUTATION–STEP 4SCF-THE SECRET TO COMPUTATION–STEP 4SCF-THE SECRET TO COMPUTATION–STEP 4SCF-THE SECRET TO COMPUTATION–STEP 4

Statement of Cash Flows

Cash flows from operating activities Net Income $28,000 Adjustments to reconcile net income to net cash Depreciation expense $5,000 Increase in accounts receivables ($2,000) Decrease in Inventory $1,000 Increase in accounts payable $1,500 Decrease in salaries payable ($2,000) Net cash provided by operating activities $31,500 Cash flows from investing activities Purchase of equipment ($20,000) Net cash used by investing activities ($20,000)Cash flows from financing activities Decrease in long term notes payable ($1,000) Decrease in long term bonds payable ($500) Net cash used by financing activities ($1,500)Net Increase in cash $10,000

Cash at beginning of the period $25,000 Cash at the end of the period $35,000

SCF– POLL QUESTION SCF– POLL QUESTION SCF– POLL QUESTION SCF– POLL QUESTION

There are three sections on the statement of cash flows (T/F):

a. True

b. False

SCF– POLL QUESTION SCF– POLL QUESTION SCF– POLL QUESTION SCF– POLL QUESTION

There are three sections on the statement of cash flows (T/F):

a. True

b. False

Operating, financing, investing AND cash reconciliation.

SCF– DIRECT METHODSCF– DIRECT METHODSCF– DIRECT METHODSCF– DIRECT METHOD

To understand the direct method, please listen to this video:

http://www.youtube.com/watch?v=SeSB5uBrCaE

Are there any

questions?

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