3 Statement Of Cash Flow

STATEMENT OF CASH FLOWS

STATEMENT OF CASH FLOWS THE CONCEPT OF CASH FLOW STATEMENTS A flow statement explains the changes that took place in a balance sheet account or group of accounts during the period between the dates of two balance sheet snapshots. The income statement (and related statement of retained earnings) is a flow statement. It explains changes that occurred in the retained earnings account by summarizing the increases (revenues) and decreases (expenses and dividends) in retained earnings during the accounting period

STATEMENT OF CASH FLOWS PURPOSE OF THE CASH FLOW STATEMENT



To provide information about the cash flows associated with the period’s operations and also about the entity’s investing and financing activities during the period.

STATEMENT OF CASH FLOWS SOURCES AND USES OF CASH  

SOURCES – activities that generate cash USES – activities that involve spending cash

STATEMENT OF CASH FLOWS MAJOR TYPES OF CASH SOURCES AND USES SOURCES 1. 2. 3. 4.

Operations New borrowings New stock issues Sale of property, plant & equipment 5. Sale of other noncurrent assets

USES 1. 2. 3. 4.

Cash dividends Repayment of borrowings Repurchase of stock Purchase of property, plant & equipment 5. Purchase of other noncurrent assets

CASH FLOWS PRESENTED IN SOURCES AND USES FORMAT

FAIRWAY CORPORATION Sources and Uses of Cash For the year ended December 31, 19x1 (dollars in thousands) Amount Sources of cash: Cash generated by operations $228 Short-term borrowings 15 Long-term debt 375 Issuance of common stock 44 Proceeds from disposal of equipt. 20 Sale of investment securities 75 Total sources of cash $757

Percent 30.1 2.0 49.5 5.8 2.6 9.9 100.0

CASH FLOWS PRESENTED IN SOURCES AND USES FORMAT

FAIRWAY CORPORATION Sources and Uses of Cash For the year ended December 31, 19x1 (dollars in thousands)

Uses of cash: Acquisition of plant and equipt. Purchase of investment securities Dividends paid Repayment of short-term debt Repayment of long-term debt Total uses of cash Net Increase in cash

Amount

Percent

$500 25 60 36 40 661 $ 96 =====

66.1 3.3 7.9 4.8 5.3 87.3 12.7 ====

3 MAJOR CATEGORIES OF CASH FLOW STATEMENT o OPERATING ACTIVITIES – are defined to be all transactions that are not investing or financing activities. o INVESTING ACTIVITIES – include acquiring long-lived assets such as property, plant, equipment and investments in securities that are not cash equivalent. o FINANCING ACTIVITIES – include borrowing of cash and the issuance of equity securities.

DIRECT METHOD OF REPORTING CASH FLOWS FROM OPERATING ACTIVITIES Cash flows from operating activities: Cash received from customers $ 3,103,000.00 Dividends and interest from customers 19,000.00 Cash provided from operating activities 3,122,000.00 Cash paid to suppliers and employees 2,729,000.00 Interest paid 67,000.00 Income taxes paid 98,000.00 Cash disbursed from operating activities 2,894,000.00 Net cash flow from operating activities $ 228,000.00 ==========

OPERATING CASH FLOWS INDIRECT (RECONCILIATION) METHOD CALCULATIONS Net income is adjusted for all non cash revenues and expenses to convert it to cash flow from operations Non cash revenues and expenses: • Depreciation • Deferred taxes • Accounts receivables • Inventories • Prepaid expenses • Accounts payable • Gains or losses

CALCULATING OPERATING CASH FLOW FROM NET INCOME

Net Income

+

Depreciation Expense Increase in deferred taxes Decrease in accounts receivable Decrease in inventories Decrease in prepaid expenses Increase in payables * Loss on disposal

-

Decrease in deferred taxes Increase in accounts receivable Increase in Inventories Increase in prepaid expenses Decrease in payables Gain on disposal

=

Net cash Flow from Operating Activities

END OF PRESENTATION