Understanding Cash Flow Reporting for Financial Analysis: A

School: Indiana University Of Pennsylvania - Course: ACCT 202 - Subject: Accounting

Acct. 202 Notes Chapter 12- Cash Flow Reporting (Indirect Method Only) Required by every company registered w/ sec oPrepared annually income statement, balance sheet, statement of equity, cash flow Not daily/weekly/monthly oOptional before 1986, became required 1987 Cash flows are recorded when it is collected not sold/bought oHelps see real value, instead of net income using accrual balance oTracks and records all money outflow and inflow in a period of time Let's company know oIf they are financially stable- can pay bills and turn a profit/ invest oPlan day-to-day operations oMake long term investments Cash is oHighly liquid investments, short-term oEasily converted oClose to maturity so the value isn't volatile (interest rates) Statement of Cash Flows have 3 sections oOperating Activities NOT EFFECTING CASH FLOW Depreciation Day-to-day expenses Inflows Sales (cash/credit) Interest revenue Dividend revenue Amortization/depreciation, add Inventory, less increases Day-to-day expenses Outflows Paying back interest Salaries/Wages, add increases Gain on sale of plant assets, less Taxes/Fines Pre-paid expenses, less increases Suppliers for goods/services Operating expenses (rent/utilities/office supplies) Accounts receivable, add decreases Accounts payable, add increase oInvesting Activities Putting money into future accounts Inflows Sale loss/gain= book value- sold @loss/gain Selling intangible assets (resources) Acct. 202 Notes Selling Long-term investments Selling Short-term investments Selling plant assets (building land) Collecting principal on notes receivable Outflows Buying intangible assets (resources) - Buying Long-term investments - Buying Short-term investments - Buying plant assets (building land) - Loaning out money/notes receivable - oFinancing Activities Raising money Paying back interest (falls under operating activity) Dividends Inflows Issuing common/preferred stock Notes/bonds payable Reissuing its treasury stock Company holds own stock and then sells Contribution from owners (oft in exchange for common stock in larger business) Outflows Pay dividends to shareholders Purchase treasury stock Withdrawals by owners Pay off short-/long- term debt (notes/bonds payable) oAlso includes major noncash investing/financing activities Things that affect long-term investing activities Retirement of debt by issuing equity stock Converting preferred stock to common Depreciation expenses Preparing Statement of Cash Flows oUses 3 sources Comparative balance sheet (last year and this year/beginning and end) Current income statement Additional information (might not be on other 2 sheets) oIndirect method template See note for exact template Focuses on current assets (used within 1 yr.) Accounts receivable Notes receivable Prepaid expenses

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