Increase in equipment: An example of two transactions from the purchase and sale of equipment show on two line on the Statement of Cash Flows. Increase in Bonds Payable: An example of additional information that the land purchase was through the issuance of bonds payable that does NOT affect cash but is a significant noncash investing and financing activity that must be disclosed in a separate schedule. Increase in Common Stock: An example of additional information that the issuance of common stock for cash and would be shown in the financing section. Increase in Retained Earnings: The following factors account for this increase. Net income increases Retained Earnings. Additional information may indicate that the company declared and paid a cash dividend. operating activities net income The increase due to is reported in the section. financing activities cash dividend The paid is reported in the section. This analysis can also be made directly from the Retained Earnings account. STATEMENT OF CASH FLOWS: Operating activities with positive amount uses the words, by” to give the total amount of cash flows provided by “provided “Net operating activities.” In the investing and financing activities sections, positive numbers indicate cash inflows (receipts), and negative numbers indicate cash outflows (payments). Investing activities with a total negative has the words, by” to “used give the total amount of cash flows investing activities.” used by “Net Financing activities with a negative uses the words, by” to “used give the total amount of cash flows financing activities. used by “Net Prepare a Statement of Cash Flows using the Direct Method: Step 1: Operating Activities—DETERMINE NET CASH PROVIDED/USED BY OPERATING ACTIVITIES BY CONVERTING NET INCOME FROM AN ACCRUAL TO A CASH BASIS: Under the DIRECT METHOD, net cash provided by operating activities is computed by: Adjust each item on the income statement from the accrual basis to the cash basis Major classes of operating cash receipts and cash payments are reported.
Increase in equipment: An example of two transactions from the purchase and sale of equipment show on two line on the Statement of Cash Flows. Increase in Bonds Payable: An example of additional information that the land purchase was through the issuance of bonds payable that does NOT affect cash but is a significant noncash investing and financing activity that must be disclosed in a separate schedule. Increase in Common Stock: An example of additional information that the issuance of common stock for cash and would be shown in the financing section. Increase in Retained Earnings: The following factors account for this increase. Net income increases Retained Earnings. Additional information may indicate that the company declared and paid a cash dividend. The increase due to net income is reported in the operating activities section. The cash dividend paid is reported in the financing activities section. This analysis can also be made directly from the Retained Earnings account. STATEMENT OF CASH FLOWS: Operating activities with positive amount uses the words, “provided by” to give the total amount of “Net cash flows provided by operating activities.” In the investing and financing activities sections, positive numbers indicate cash inflows (receipts), and negative numbers indicate cash outflows (payments). Investing activities with a total negative has the words, “used by” to give the total amount of “Net cash flows used by investing activities.” Financing activities with a negative uses the words, “used by” to give the total amount of “Net cash flows used by financing activities. Prepare a Statement of Cash Flows using the Direct Method: Step 1: Operating Activities—DETERMINE NET CASH PROVIDED/USED BY OPERATING ACTIVITIES BY CONVERTING NET INCOME FROM AN ACCRUAL TO A CASH BASIS: Under the DIRECT METHOD, net cash provided by operating activities is computed by: Adjust each item on the income statement from the accrual basis to the cash basis Major classes of operating cash receipts and cash payments are reported.
Chapter_14_Statement_of_Cash_Flows.docx