Cash Flow Statement for Bahria

8/6/2019 Cash Flow Statement for Bahria

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Purpose of Statement of Cash Flows

Helps the user of the

financial statements assess . . .

1. A firms ability to:

Generate cash. Meet its obligations.

Pay dividends.

2. The reasons for differences between

net income and cash provided from

operations.

3. The effect of cash and noncash investing

and financing activities during the period.

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Cash Flows

Net profits are not cash. They are the result ofaccounting techniques and policies that areused to prepare the statements.

Lets think for a minute Sales are shown as income whether the cash

has been collected or not.

CGS may include the cost of stock that has

been sold, even though the suppliers may nothave been paid.

Expenses include non cash items such asdepreciation and bad debt charges.


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Purpose of Cash Flow Analysis

To produce a measure of performance

that is based on day to day cash flow:

Cash generated by ordinary businessactivities instead of accrual accounting.

This Net Cash from Operations does notnegate the information given by accrual

profit, it just presents the information from

a different perspective.


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Cash receipts and cash paymentsare classified on the Statement

of Cash Flows as follows: Operating Activities

Investing Activities

Financing Activities

Classifying Cash Flows

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Inflows from: Selling long-term productive

assets.

Selling equity investments.

Collecting principal on loans. Other.

Outflows to:

Purchase long-termproductive assets.

Purchase equity investments.

Purchase debt investments.

Make loans.

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Inflows from:

Issuing its own equitysecurities.

Issuing bonds and notes.

Issuing short-term andlong-term debt.

Outflows to: Pay dividends to

stockholders. Purchase treasury stock.

Repay cash loans.

Cover withdrawals byowners.

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Cash Flows: Gross orNet?

For both financing andinvesting activities,

items on thestatement of cashflows should be

presented in grossamounts.

Foroperating activitiesamounts are typically

netted.

Investing Activities:

A Company sellsan old building for

$700,000 andpurchases a newbuilding for$1,000,000.

The $700,000 inflowof cash and the$1,000,000 outflowof cash must bereported separately.

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Cash flows from operating activities:

[Li ofi i i li flows and outflows]et cash provided (used) by operating activities $ #####

Cash flows from investing activities:

[List ofindividualinflows and outflows]

et cash provided (used) by investing activities #####

Cash flows from financing activities:[List ofindividualinflows and outflows]

et cash provided (used) by financing activities #####

et increase (decrease) in cash $ #####

Cash (and equivalents) balance at beginning of period #####

Cash (and equivalents) balance at end of period $ #####

Company ame

Statement of Cash Flows

Covered Period

Format of the

Statement of Cash Flows

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Constructing theStatement of Cash Flows

Sources Uses

Net income lwa s

Net loss lwa s

Changes in noncash assets Decreases ncreases

Changes in lia ilities* ncreases DecreasesChanges in ca ital stoc accounts ncreases Decreases

Di i en s ai to stoc hol ers lwa s

otal sources - otal uses = Net cash flow

*Contra asset accounts follow the rules for lia ilities.

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Items Requiring Separate isclosure: Retirement of debt by issuing equity stock.

Conversion of preferred stock to common

stock. Leasing of assets in a capital lease

transaction.

Purchase of long-term asset by issuing a

note or bond. Exchange of noncash assets for other

noncash assets.

Purchase of noncash assets by issuing

equity stock or debt.

Noncash Investing

and Financing Activities

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Operating Activities can be reportedin one of two ways:

1. Indirect Method

Reports necessary adjustments toreconcile net income to net cash provided(used) by operating activities.

2. irect Method

Separately lists each major item of

operating cash receipts and disbursements. Recommended by the FASB.



Classifying Cash Flows

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Indirect Method Net income (or loss)

Reconciling items:

Adjustments for changes in currentassets and current liabilities

Adjustments for operating itemsnot providing or using cash(depreciation, amortization,depletion, and baddebts)

Adjustments for nonoperatingitems (nonoperating gains andlosses)

Net cash provided (used) by operating

activities

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Cash Flow Statement for Bahria

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