4. Statement of Cash Flows 4.1 Indirect Method 4.2 Cash Flow - - PowerPoint PPT Presentation

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4. Statement of Cash Flows 4.1 Indirect Method 4.2 Cash Flow - - PowerPoint PPT Presentation

Apr 22, 2023 355 likes •1.03k views

4. Statement of Cash Flows 4.1 Indirect Method 4.2 Cash Flow Analysis 4.3 Operating, Financing, and Investing Activities 4.4 Summary 4.1 Indirect Method The Indirect Method is the usual method of computing cash flow from business

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  • 4. Statement of Cash Flows
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4.1 Indirect Method 4.2 Cash Flow Analysis 4.3 Operating, Financing, and Investing Activities 4.4 Summary

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4.1 Indirect Method

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  • The Indirect Method

is the usual method

  • f computing cash

flow from business

  • perations
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  • The Indirect Method

starts with net income

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  • Indirect Method

then uses the changes in the asset and liability accounts to adjust net income

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  • This adjustment

allows for net income to transfer into cash flow from business operation activity.

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  • A line for total cash

flow from financing activities uses a single line under it.

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  • This means that the

total is not part of the calculation below it:

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  • By adding total net

cash flow to the beginning cash account balance, we get the value for “cash—end of period.”

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  • This number must

equal the balance in the cash account at the end of the period.

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4.2 Cash Flow Analysis

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  • Cash flow analysis

is utilized for reporting purposes in the cash flow statement.

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  • Cash flow analysis

exhibits a starting balance

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  • Then will display an

ending balance after accounting for cash expenses in the period

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  • The Cash Flow

Statement shows where the cash came from, and where it went during the period

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  • It appears at bottom
  • f cash flow

worksheet, include interest incurred.

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  • The Cash Flow

Statement displays cash flow from the following areas:

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  • Cash flow from

Operations

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  • Cash flow from

investing activities

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  • Cash flow from

financing activities

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  • The calculation for

the Cash Flow Statement utilizes the components of: (1) net cash flow (2) cash—end of period.

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The formula used in this analysis is as follows:

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  • Cash from
  • perations + Cash

from investing activities + Cash From Financing Activities = Total change in cash + Cash—Beginning Of Period = Cash—End Of Period.

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4.3 Operating, Financing, and Investing Activities

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4.3.1 Operating Activities 4.3.2 Investing Activities 4.3.3 Financing Activities

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4.3.1 Operating Activities

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  • Operational Activity

is found in the first section of the Cash Flow Statement.

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  • “Operations” refers

to what a business normally does to make money

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4.3.2 Investing Activities

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  • Investing Activities

appear in the second section of the cash flow statement

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  • Investing Activity

displays a business’ income-producing sources, such as properties.

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  • On the cash flow

statement, it is normal to observe a negative number pertaining to an investment

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  • It signifies that cash

went out of the company to purchase assets

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4.3.3 Financing Activities

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  • Appears in the third

section of the cash flow statement

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  • It’s the process of

finding money for the business from sources other than normal operations:

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  • Primary Source 1:
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  • Lenders
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  • Primary Source 2:
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  • Investors
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  • This activity will

display all reports

  • n money returned

to investors:

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  • This is where

money is paid to the principal on a loan from a lender.

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4.4 Summary

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Cash flow analysis is utilized for reporting purposes, as applied in the cash flow statement.

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  • Cash flow analysis exhibits a starting balance
  • Then will display an ending balance after

accounting for cash expenses in the period

  • The Cash Flow Statement shows where the

cash came from, and where it went during the period

  • It appears at bottom of cash flow worksheet,

include interest incurred

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The Cash Flow Statement displays cash flow from the following areas:

  • Cash flow from Operations
  • Cash flow from investing activities
  • Cash flow from financing activities
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The calculation for the Cash Flow Statement utilizes the components of: (1) net cash flow (2) cash—end of period.

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  • The formula used in this analysis is as

follows:

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  • Cash from operations +
  • Cash from investing activities +
  • Cash From Financing Activities (net cash

flow) =

  • Total change in cash + Cash—Beginning Of

Period = Cash—End Of Period

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Exam: The financial statement that includes classifications for operating, financing, and investing activities of a business entity for a period of time is called the:

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(A) Income Statement (B) Statement of Retained Earnings (C) Balance Sheet (D) Statement of Changes in Owners’ Equity (E) Statement of Cash Flows