THINGS TO KNOW ABOUT CASH FLOW Cash Fiow Statement: Shows what the Company does with ther cash Reconciles cash basis lo accrual basis Usod io determine: S the company’s ability generate future cash flows the company's abit to repay debt ‘how much cash was spent investing in assets baw much cash was reeived from borowng (Cash Equvalents: Short enn, highly quid — CDs, 3 month treasury, money market Treated the same as cash on the cash flow statement The cash flow statement is separated into three sections berating Activites: Relates othe production and delvery of godstservces: Net Income revenues less expenses) ‘Show Nov-cash revenues and expenses separately ‘Changes in cunent assets and curent iabibes Investing Actives: Long term assets -investmens, pi, intangibles purchases and sales of ng-term assets Financing Actives: Long tenn liabilies and Owners equity = borow and repay debt - pay dvdends to shareholders issue slock repurchase treasury stock “For investing and Financing Activities oly th cash received or pi from the transaction is reported on the cash fow staement (Cash tom operating actives can be reported using te crect method or the indirect method. Investing ‘and financing actives are reported the same uncer both methods. Format ofthe Direct Method Cash received from: customers ~ sling goas and services ‘vider come — fom investments inerest em ~ fom invesenis Toll cash esived Cash pai for purchases of goods (inventory) and services salons and wages io employees ince taxes othe govemment inlerest expense tenders ciher cash expenses Toll cash pai: = Cashflow tom operating actives Format ofthe indirect Method ‘Net income “+> Nomgashevenues() and expenses() gains) and losses (+) ++ changes in curen sses nd abies = Cash flow fom operating activities,Preparing the Cash Flow Siatement using the lndect Method Net income +++ Adjustments for Noncash ems - add expenses and loses ~subtat revenues and gains +++ Change in Guent Assets and Libis ‘Assets: increase from por year ~ subtract decrease rom prior yea- add “assets and Habits axe opposi. Lables: increase from prior year — decrease from prior year - subtract = Cash from operating activites Prepanng the Cash Flow Statement using the Direct Method Colectd rom customers: Sales or olher revenue “beginning rcewvable coding recewvable = Cash collected from customers Collected from investments — dividend and interest income: Dividend/nterest Income + beginning receivable = eoding receivable = Cash collected from dividendsinterest Pad to suppliers: Cost of Goods Sold - Beginning Inventory + Ending Inventory + Beginning AP Ending AP = Cash Pad to Suppliers Paid for al ther expenses: Expense + Beginning matching payable Ending matching payable += Cash Paid for expense Expense ~ Begining matching asset ‘vending machin asset = Cash pd for expense ‘Abways: Beginning - Ending, excepl when matching an asset with an expense \Noncash Activities: Trade an asset for another asset or liability ‘Atransaction where no cash i involved hiss rot reported in the cash fw statement and is listed atthe bottom ofthe statement