FAR 25 - STATEMENT OF CASH FLOW Flashcards
What items are included in operating activities on the Statement of Cash Flows?
Collections from customers
Cash payments for COGS & SGA
Interest Received & Paid
Dividends Received
Aquisition & disposal of trading securities
Payments for income taxes
All other that are not investing or financing
What items are included in investing activities on a Statement of Cash Flows?
Cash received: Sale of PP&E- Sale of Investments- Loan PrincipleCash paid: Loans- Acquisitions- AFS or HTM Securities- Taxes- Trading Securities
(L-I-P)
Principal collections or Loans made by the entity
Aquisition or disposal of AVS or Held-to-Maturity Investments
Aquisition or Disposal of PPE & Intangibles
What items are included in Financing Activities in a Statement of Cash Flows?
Cash received from issuing bonds
Payments for retiring Bonds (interest is operating)
Issuance of Common stock
Reaquisition of Treasury Stock
Borrowing or Repaying a Loan
Dividends PAID to shareholders
Direct Method
Operating Activities Ajustments:
Cash sources & uses related to each account in income from continuing operations are listed individually.
Direct Method - Take every income statment item and convert from the accrual method of accounting back to Cash.
***Sales are adjusted for changes in A/R
***COGS are adjusted for changes in BOTH Inventory & A/P
***Selling expenses may be adjusted for changes in Allowance for Uncollectible A/R & Accumulated depreciation if they are included in selling expense
***Interest expense is adjusted for amortization of bond discount or premium
***Income tax expense is adjusted for changes in current & deferred taxes
Indirect Method
(For Operating Activities)
Begins with Net Income
+Net Income
+/- Non-cash items adjusted
(Depr & Amort expense is added back, Equity in Earnings is deducted)
+/- Non-operating items are adjusted
(deduct gain/add loss from operating activities on sale of an AVS security, since this is an investing)
+/- Changes in the balances of accrual related accounts are adjusted
(A/R, Inventory,A/P,Allowance for Uncollectible, Amort of Discount, Taxes)
Are Cash Flows Per Share disclosed?
Cash Flow Per Share are NOT DISCLOSED
Five steps in preparing a Statement of Cash Flows
1. Set-up the statement of cash flows in a 3-column format.
-1st Column is for Increases, 2nd Column is for Decreases, 3rd Column is for the net Change
2. Set up T-accounts for each balance sheet account, other than cash
-Increases or decrease can be placed on the appropriate debit or credit side of the T-Account
3. Analyze info, preparing journal entries and posting to each T-Account
4. Any unreconciled differences in the balace sheet T-accounts should be eliminated with the offsetting debit or credit going into the appropriate section of the cash flow.
5. Complete
Supplementary Disclosures
Direct Method (2)
- Schedule to reconcile net income (indirect)
- Schedule of non-cash investing & financing activities
DR: Equipment
CR: Common stock
Supplementary Disclosures
Indirect Method (2)
- Cash payments for Interest & Income taxes must be disclosed NOT OPERATING.
- Schedule of non-cash investing & financing activities
Allowance for Uncollectible Accounts
Allowance for Uncollectible Accounts means there was a Debit to Bad Debt Expense which did not use cash, so if this account increases, it should be added back to Net Income.
Correct! Beginning with net income of $150,000, the following adjustments will be made:
An increase in accounts receivable indicates that some sales were not collected. Deduct $6,000.
An increase in the allowance for uncollectible accounts indicates bad debts expense, which did not require the use of cash. Add $200.
A decrease in prepaid rent indicates that some of the rent expense had been paid in a previous period. Add $4,200.
An increase in accounts payable indicates that some of the goods purchased were not paid for. Add $3,000.
Net cash provided by operating activities is $150,000 - $6,000 + $200 + $4,200 + $3,000 or $151,400.
