University:
Massachusetts Institute of Technology
Course:
15.501 | Introduction To Financial And Managerial Accounting
Academic year:

2023
Views:

426

Pages:

10
Author:

ntshahomy

Statement of Cash Flows ! ! ! ! ! Statement of Cash Flows Beginning Balance Assets = Liabilities )Cash +)OA = Assets Ending Balance Y )Liabilities = Liabilities + S.E. + )CC + NI - Div + )Cash +/- “other stuff” = S.E. NI Statement of Cash Flows ! Fixed claimants (lenders) ! Residual claimants (shareholders) ! Managers Why do we need a separate financial statement? Statement of Cash Flows ! Direct or indirect statements ! Categorize transactions into one of the following: < Operating Activities < cash provided by the sale of goods or service, including interest and dividends received < cash used to pay operating expenses, including interest expense < Investing Activities < cash used to buy long-term assets and investments < cash obtained by selling long-term assets and investments < Financing Activities < cash provided by issuing stock or debt instruments < cash used to repay debt principal and repurchase stock < cash used to pay dividends, but NOT interest paid on debt Statement of Cash Flows ! Direct: start from cash transactions < Investing and Financing sections ==> always direct ! Indirect: start from NI, back out accruals < Cash flow amount from operations ==> same as direct < Key difference: Presentation in the cash flow from operations section Statement of Cash Flows ! What events affect cash flow from operations and net income equally? ! What events affect cash flow from operations but NOT net income? ! What events affect net income but NOT cash flow from operations? Statement of Cash Flows Direct Beginning Cash + Cash rcv’d from customers + Interest received - Cash paid to suppliers - Cash paid to employees - Interest paid +/- other adjustments = Cash from Operations +/- Cash from Investing +/- Cash from Financing = Ending Cash Indirect Beginning Cash Net Income + Increase in payables - Increase in receivables +/- other adjustments = Cash from Operations +/- Cash from Investing +/- Cash from Financing = Ending Cash Statement of Cash Flows Balance sheet equation: A(t) = L(t) + E(t) Decompose: => Differences: DA = DL + DE DCash + DCA + DNCA = DCL + DNCL + DCC + DOE + DRE Note that DRE = NI - Div, thus after rearranging, DCash = NI - DCA + DCL - DNCA + DNCL + DOE + DCC -Div Accounts we know: DCash = NI - DnetAR - DInventory - DOCA + DCL -DnetPPE - DONCA + DNCL + DOE + DCC - Div Statement of Cash Flows DCash = DCashoperations + DCashinvesting + DCashfinancing DCashoperations = NI + DepExp - DnetAR - DInventory -DOCA + DCL - Gain(Loss) DCashinvesting = -DnetPPE + Gain(Loss) -DepExp -DONCA+DOE = - Acquisitions + Disposals - DONCA+DOE DCashfinancing = + DNCL + DCC - Div Special Rules for Significant Noncash Transactions Some transactions are omitted from the SCF but disclosed elsewhere (such as at the bottom of the SCF) so long as they are material: < Acquisition of assets by assuming liabilities (including capital lease obligations) or by issuing equity securities < Exchanges of non-monetary assets < Refinancing of long-term debt < Conversion of debt or preferred stock to common stock < Issuance of equity securities to retire debt