School: Generally Accepted Accounting Principles and...

ILLUSTRATION 22-1

OPERATING, INVESTING, AND FINANCING ACTIVITIES

Operating
Cash inflows
From customers paying on account for the sale of goods or services.
From customers for cash sales.
From returns on loans (interest) and on equity securities (dividends).

Cash outflows
To suppliers on account for purchases of inventory and other goods and services.
To or on behalf of employees for services and benefits.
To government for taxes.
To creditors for interest.

Investing
Cash inflows
Proceeds on the sale of property, plant, or equipment.
Proceeds on the sale of investments in debt or equity securities of other entities.
Proceeds from the collection of principal on loans to other entities.

Cash outflows
To purchase property, plant, or equipment.
To purchase investments in debt or equity securities of other entities.
To make loans to other entities.

Financing
Cash inflows
Proceeds on the sale of shares of capital stock.
Proceeds on the issuance of debt (bonds or notes).

Cash outflows
To reacquire shares of capital stock.
To redeem debt.
To shareholders for dividends

ILLUSTRATION 22-2

FORMAT OF STATEMENT OF CASH FLOWS

Company Name Statement of Cash Flows Period Covered

Operating activities Cash from operations
Net income before extraordinary operating expense $XX
Net change in working capital balances related to operations 1 XX
Depreciation XX
Future (deferred) income taxes XX
Income from equity-accounted investments (XX) XX
Loss from product recall costs paid (XX)

Cash flow generated by operating activities XXX

Investing activities
Purchase of property, plant, and equipment (XX)
Proceeds from disposals of plant and equipment XX
Payments for development costs capitalized (XX)
Cash flow used in investing activities (XX)

Financing activities Dividends paid (XX)
Repayments of long-term debt (XX)
Proceeds on the issuance of common shares XX
Cash flow generated by financing activities XX

Change in cash and cash equivalents during the year XX
Cash and cash equivalents at beginning of the year XX

Cash and cash equivalents at end of the year $ XX

1 Consisting of changes in receivables, inventories, prepaid expenses, accounts payable, taxes payable and other accrued charges.

ILLUSTRATION 22-3

INDIRECT METHOD: ADDITIONS AND DEDUCTIONS TO AND FROM NET INCOME

INDIRECT METHOD: ADDITIONS AND DEDUCTIONS
__________________________________________________________________

Net Income

Additions

Depreciation expense
Amortization of intangibles and deferred charges
Amortization of bond discount1
Increase in future (deferred) income tax
Loss on investment—equity method
Loss on sale of plant assets
Decrease in receivables
Decrease in inventories
Decrease in prepaid expense
Increase in accounts payable
Increase in accrued liabilities

Deductions

Decrease in future (deferred) income tax
Income on investment—equity method
Gain on the sale of plant assets
Increase in receivables
Increase in inventories
Increase in prepaid expense
Decrease in accounts payable
Decrease in accrued liabilities

=

Net cash flow from operating activities

ILLUSTRATION 22-4

SCHEDULE OF CHANGES FROM THE ACCRUAL
TO CASH BASIS AMOUNTS—DIRECT METHOD ILLUSTRATED

EASTERN WINDOW PRODUCTS LIMITED SCHEDULE OF CHANGES FROM ACCRUAL TO CASH BASIS REVENUES AND EXPENSES
__________________________________________________________________

From Income statement
Adjustments
Cash basis

Sales
+ 592,000
+ 10,000 (a)
+ 602,000 1

Cost of goods sold
Other operating expenses
- 355,000
- 51,000
- 9,000 (b)
+ 1,500 (c)
+ 10,900 (h)
- 402,600 2

Salaries and wages expense
- 55,000
- 700 (j)
- 55,700 3

Interest expense
- 39,900

- 16,200 4

Income tax expense

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