Ch 17 - The Cash Flow Statement Flashcards
(37 cards)
Operating Activities
Include the cash effects of transactions that create revenues and expenses. ie sales leading to profit
Investing avtivities
Non current asset accounts. Include:
- Buying and selling of long-lived assets
- Buying and selling of long-term debt or equity investments
- Lending money and collecting loans
Financing activities
Non-current liability and shareholder’s equity accounts and include:
- obtaining cash from issuing debt and repaying the amounts borrowed
- obtaining cash from shareholders
- paying shareholders dividends
How is the reporting of interest and dividends different for IFRS and ASPE?
IFRS - can be classified as either an operating activity or an investing activity. (received and paid)
ASPE must classify interest (received and paid) and dividends received as operating activities. Dividends paid are classified as financing activities.
Where are non cash activities reported?
Anything not effecting cash is reported in a note to the financial statements
Indirect:
What is the first step for the statement?
Operating activities - adjust profit to a cash basis.
Indirect - what adjustments are made to the profit to figure out net cash provided/used?
- Add back non-cash expenses, ie depreciation expense and amortization expense
- deduct gains and add losses that resulted from investing and financing activities
- analyze changes to non-cash current asset and current liability accounts
When selling long-lived assets like equipment, where is the gain/loss recorded? What about actual cash amount received?
Gain/loss is deducted/added from profit to determine net cash used by operating activities.
The actual amount of cash received is reported in the investing activities section of the cash flow statement.
Not operating since it is not a normal day to day thing.
Accounts receivable (indirect) how do you calculate a change in it?
If accounts receivable increase, deduct the increase from the profit in the operating section.
If AR decreases, add the decrease to profit
How about for inventory changes?
If inventory increases, deduct the increase from profit in the operating section
If Inventory decreases, add the decrease to profit.
When inv. increases, more inventory was purchased during the period than the amount sold.
Prepaid expenses?
If prepaid items increase, deduct the increase from profit in operating section.
If prepaid items decrease, add the decrease to profit
Accounts payable? How would you calculate cash paid to suppliers for inventory?
If AP increase, add the increase to profit in operating section.
If AP decrease, deduct from profit
Beginning AP balance + inv. purchases - ending AP balance = Cash paid to suppliers for inventory.
How to find out Cash paid for goods?
Cost of goods sold +/- change in inventory = cost of goods purchased. + decrease in AP/ - increase in AP = cash paid to suppliers
Income tax payable effect on the cash flow statement?
If Income tax payable increases, add the increase to profit in the operating section.
If ITP decreases, deduct from profit
Prepare operating activities section of the Cash flow statement using the indirect method:
2017 2016 Increase (dec)
Current assets
Cash $54,000 $37,000 $17,000
AR 68,000 26,000 42,000
Inventory 54,000 10,000 44,000
Prepaid exp 4000 6000 (2000)
Current liabilities
AP 23,000 50,000 (27,000)
Accrued exp payable 10,000 0 10,000
\
Income Statement
Sales revenue 890,000
Cost of goods sold 465,000
Gross profit
Operating expenses 188,000
Depreciation expenses 33,000
Loss on sale of equipment 2000 223,000
Profit from operations 202,000_
Other expenses
Interest expense 12,000_
Profit before income tax 190,000
Income tax expense 65,000_
Profit $125,000
Statement of Cash flow
Operating Activities
Profit $125,000
Adjustments to reconcile profit to net cash
provided (used) by operating activities:
Depreciation expense $33,000
Loss on sale of equipment 2,000
Increase in accounts receivable (42,000)
Increase in inventory (44,000)
Decrease in prepaid expenses 2,000
Decrease in accounts payable (27,000)
Increase in accrued exp pay 10,000_ (66,000)
Net cash provided by operating activities $59,000
What is the only section that changes between direct and indirect method?
Operating section. Everything else is the same process.
Indirect - Summary of conversion to net cash provided (used) by operating activities
Add/Deduct
noncash expenses Depreciation expense (a)
Amortization expense (b)
Gains/losses Gain on sale of asset (c)
Loss on sale of asset (d)
Changes in noncash current asset and current liability
accounts Increase in current asset account (e)
Decrease in current asset account (f)
Increase in current liability account (g)
Decrease in current liability account (h)
A) add
B) Add
C) Deduct
D) Add
E) Deduct
F) Add
G) Add
H) Deduct
For sale of equipment, what is reported in the investing section?
Cash proceeds. Not cost of equipment sold.
How would you calculate purchases of equipment if you did not have the information available?
ie Equipment balance 2016 was $10,000
balance 2017 was 27,000.
Sold 8,000 of equipment.
Change in account was +17,000
Equipment
Opening balance 10,000
Cost of assets purchases (x) 8,000 cost of E sold
___________________________
Ending balance 27,000
$10,000 + cost of purchase (x) - 8000 = $27,000
(x) = 25,000
How would you calculate the accumulated depreciation for equipment if it wasn’t provided?
accumulated depreciation
Opening balance
- acc. dep on asset sold + depreciation expense
or disposed of (x)
Ending balance
Do a partial Statement for Investing activities.
2017 2016
Land 130,000 20,000
Building $160,000 40,000
Accumulated dep - building
(11,000) (5,000)
Equipment 27,000 10,000
Ac. Dep equip (3000) (1000)
- Land was purchased by issuing long-term bonds
- Equipment costing $25,000 was purchased for cash
- Equipment with a carrying amount of $7000 (cost of $8000, less accumulated dep of 1000 was sold for $4000 cash)
- Depreciation expense consists of $6000 for the building and 3000 for equipment
Investing activities
Purchase of building $(120,000)
Purchase of equipment (25,000)
Sale of equipment 4,000*
Net cash used by investing activities (141,000)
*10,000 + 25,000 - 8000 = 27,000. Since it was sold for 4000 cash that’s what is reported.
Cash 4000
Accum dep - equip 1000
Loss on sale of equip 3,000
Equip 8000
Step 3 - financing activities. Do finance section:
Liabilities and shareholders equity
Non-Current liabilities 2017 2016
Bonds payable 130,000 20,000
Shareholder equity
Common shares 70,000 50,000
Retained earnings 164,000 48,000
Profit for the year was $145,000
A $29,000 cash dividend was paid
Bonds payable inc $110,000 (from buying land).
Common shares account in 20,000. assumed for cash.
RE inc by 116,000.
RE
48,000 opening balance - (x) declared dividends + 145,000 profit
164,000 ending balance
x = 29,000 = dividends declared. To find out how much was paid:
Dividends declared +decrease in dividends payable
- increase in dividends payable
29,000 dividend was paid which = amount declared.
Financing activities
Issue of common shares 20,000
Payment of cash dividend (29,000)
Net cash used by financing activities $(9000)
Western corp reported an opening balance of $146,000 and an ending balance of $135,000 in its equipment account and an opening balance of $47,000 and an ending balance of $62,000 in its Accumulated depreciation - equipment account. During the year it sold equipment for with a cost of $21,000 for cash with a gain of $1000 on the sale. It also purchased equipment for cash. It recorded depreciation expense of 31,000. (a) calculate the cash received from the sale of the equipment (b) the cash paid for equipment
Accumulated dep - equipment
47,000 opening balance
(x) sale of equip +31,000 depreciation expense
62,000 ending balance
(x) = 16,000 = the accumulated depreciation of equipment sold
Original cost of equip 21,000
Less: accumulated dep (16,000)
Carrying amount 5,000
Cash proceeds (xx)
Gain of sale of equipment $1000
xx = 6,000
B) Equipment 146,000 opening balance \+ equipment purchased (x) - 21,000 equip sold 135,000 closing balance (x) = $10,000
How do you calculate the net increase in cash?
If you add this with the cash at the beginning of the year, what should this number match?
Net cash provided by operating activities $172,000
Net cash provided by investing activities (141,000)
Net cash provided by financing activities (9000)
Net increase in cash 22,000
Should equal the cash account balance in the year end balance sheet.
Net increase + Cash from previous year (beg year) = the 2017 year balance.
