16 - 1 PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D.,
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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
Examples of Noncash Investing and Financing Activities
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Format of the Statementof Cash Flows
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Preparing the Statementof Cash Flows
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Analyzing the Cash AccountP1
The Cash account is a natural place to look for information about cash flows from operating, investing,
and financing activities.
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Analyzing the Cash AccountP1
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Analyzing Noncash AccountP1
A second approach to preparing the statement of cash flows is analyzing noncash accounts.
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Information to Prepare the Statement
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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:
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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
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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.
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Analyzing Cash Sources and Uses
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Most managers stress the importance of understanding and predicting cash flows for business
decisions.
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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
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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
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Appendix 16B: Direct Method of Reporting Operating Cash Flows
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Adjust income statement accounts related to operating activities for changes in their related balance sheet accounts:
Framework for reporting cash receipts and cash payments
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Appendix 16B: Direct Method of Reporting Operating Cash Flows