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قديم 08-13-2015, 09:16 PM
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تاريخ التسجيل: Jan 2013
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افتراضي the statement of cash flows



Purpose of a statement of cash flows:
To provide information about the cash inflows and outflows of an entity during a period.
To summarize the operating, investing, and financing activities of the business.The cash flow statement helps users to assess a company’s liquidity, financial flexibility, operating capabilities, and risk.
The statement of cash flows is useful because it provides answers to the following
important questions:
Where did cash come from?
What was cash used for?
What was the change in the cash balance?
Specifically, the information in a statement of cash flows, if used with information in the other financial statements, helps external users to assess:
1. A company’s ability to generate positive future net cash flows,
2. A company’s ability to meet its obligations and pay dividends,
3. A company’s need for external financing,
4. The reasons for differences between a company’s net income and associated cash receipts and payments, and
5. Both the cash and noncash aspects of a company’s financing and investing transactions.
Review of terms
Cash and cash equivalents
It is a short-term, highly liquid investment.
It must be readily convertible to cash and it must be so near to maturity that there is insignificant risks of changes in value due to changes in interest rate.


Company, Inc.
Statement of Cash Flows
For the year ended December 31, 20XX

Cash Flows from Operating Activities
Cash received from customers
Cash received as interest income *
Cash received as dividend income
Cash paid for cost of goods sold *
Cash paid for selling expenses
Cash paid for general & administrative expenses
Cash paid for interest (including interest on capital leases)
Cash paid for income taxes
Cash that would have been paid for taxes except for “excess tax deduction” related to stock based compensation
Net cash provided by (or used by) operating activities

Cash Flows from Investing Activities
Cash received from sale of property, plant, & equipment
Cash received from sale of investments (other than trading securities)
Cash received from repayment of note receivables
Cash paid to acquire property, plant, and equipment
Cash paid to acquire investments
Cash paid out as a loan
Net cash provided by (or used by) investing activities

Cash Flows from Financing Activities
Cash received as proceeds from issuance of debt
Cash received as proceeds from issuance of stock
Cash received as proceeds from reissuance of treasury stock
Cash paid to repay debt (principal payment)
Cash paid on principal related to capital leases
Cash paid to reacquire stock (purchase treasury stock)
Cash paid as dividends
Cash retained due to “excess tax deduction” related to stock options
Net cash provided by (or used by) financing activities

Net increase (decrease) in cash
Beginning cash and cash equivalents balance
=Ending cash and cash equivalents balance

Schedule of Noncash Investing and Financing Activities
Assets for Liabilities &/or Equity
Liabilities &/or Equity for Assets
Liabilities for Equity and Equity for Liabilities
Capital lease (acquisition of asset and obligation for lessee)
A reconciliation of net income to cash provided by operations

*Brackets indicate items that are normally combined


Noncash revenues and expenses
Net income includes items that were neither cash inflows nor cash outflows:

Depreciation expense
Accretion expense on asset retirement obligation
Amortization of intangibles
Impairment loss on goodwill and intangibles
Earnings of affiliated companies accounted for using the equity method
Impairment losses on other noncurrent assets
Compensation expense related to stock options

Net income also includes gains and losses from investing and financing activities
Gain ≠ cash received (unless carrying value was zero)
Even when there is a loss, cash might have been received

Net income must be adjusted for these items to get the cash provided by operations – part of the reconciling schedule or “indirect method”

For other items, there are revenues/expenses as well as cash flows but the amounts are different:

Bond interest expense ≠ bond interest paid (if bonds were sold at premium or discount)
Sales were not all collected in cash (bad debts, other changes in Accounts Receivable)
Purchases were not necessarily paid for during period (change in Accounts Payable)
Income tax expense ≠ income taxes paid due to deferred tax assets/liabilities as well as income taxes refunds receivable or unpaid taxes owed
Pension expense is not necessarily equal to the cash flow (contribution to plan assets)

Operating Activities
(Usually associated with working capital accounts like Accounts receivable, inventory, salaries payable, etc.)
Inflows:
From sale of goods and services
From receiving dividends investments
From receiving interest from investments or loans
From sale of trading securities**
From reduced income taxes due to “excess tax deduction” related to stock options
Outflows:
To suppliers for inventory and other materials
To employees for services
To other entities for services (insurance, etc.)
To government for taxes
To lenders for interest
To purchase trading securities**


Interest expense is an operating item! Investment earnings (dividends & interest) is an operating item! Buying and selling trading securities is an operating activity! These things may not make sense to you – so “memorize.”

Investing Activities
(Usually associated with long-term assets)
Inflows:
From sale of property, plant and equipment
From sale of debt or equity investments of other entities*
From collections of principal on loans to other entities
Outflows:
To purchase property, plant and equipment
To purchase debt or equity securities of other entities
To make loans to other entities

*except investments classified as trading securities which have been defined as operating activities (until FAS159)
** FAS159 (para. C5c) permits trading securities to be classified as operating or investing “based on the purpose for which the securities were acquired.” This standard becomes effective for 2009 financial statements.

Financing Activities
(Usually associated with long-term liability and equity items)
Inflows:
From issuance of debt (bonds and notes)
From issuance of equity securities
Common stock
Preferred stock
Re-issuance of treasury stock
Outflows:
To stockholders as dividends
To repay or retire long-term debt, including capital leases for lessee (interest on leases is classified as operating)
To reacquire capital stock (treasury stock)

CLASSIFICATION – CONFUSING ITEMS TO WATCH OUT FOR
Dividends are paid to stockholders and interest is paid to bondholders.
Dividends paid are shown as outflows under financing activities
However, FASB defined interest expense to be an operating activity
Interest & dividend revenue are defined to be operating activities, too.


Direct versus Indirect Presentations
FASB Statement No. 95 allows two ways to calculate and report a company’s net cash flow from operating activities on its statement of cash flows.
The Indirect Method
Under the indirect method, net income is adjusted for noncash items related to operations to compute the net cash flow from operating activities.
If you choose to use the indirect method, you must also disclose interest paid and income taxes paid during the year.


The Direct Method
Under the direct method, operating cash outflows are deducted from operating cash inflows to determine the net cash flow from operating activities.
If you choose the direct method, a reconciliation of cash provided by operations to net income is a required disclosure.
This is the same schedule that appears in a statement prepared using the indirect method

The required information items on a direct method statement of cash flow (per FASB)
Operating Inflows
Cash collected from customers (including lessees, tenants, licensees, and the like)
Interest and dividends received
Other operating cash receipts, if any
Operating outflows
Cash paid to employees and other suppliers of goods or services (including insurance, advertising and the like)
Interest paid
Income taxes paid
Other operating cash payments, if any
Other disclosures
Under both methods (direct & indirect), you must disclose noncash financing and investing activities
This can be on face of the statement or in the notes to the financial statements.
Examples:
Trade common stock for land
Convertible bonds converted to common stock
Issue bonds in exchange for a building
Convertible bonds converted to common stock
Significant transactions should be disclosed separately.
The disclosure of significant noncash financing and investing activities are required under both methods (direct & indirect)
The disclosure can be on face of the statement or in the notes to the financial statements.
Disclosure added by FASB 123R effective for periods beginning after June 15, 2005
The amount of cash received from exercise of share options (employee stock-based compensation plans) and the tax benefit realized from stock options exercised during the annual period

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