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