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Statement of
Cash Flows
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After studying this chapter, you should
be able to:
1. Summarize the types of cash flow
activities reported in the statement of
cash flows.
2. Prepare a statement of cash flows,
using the indirect method.
3. Prepare a statement of cash flows,
using the direct method.
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Objective 1
16-1
Summarize the types of
cash flow activities
reported in the
statement of cash flows.
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16-1
The statement of cash flows reports a
firm’s major cash inflows and outflows
for a period. It provides useful
information about a firm’s ability to
generate cash from operations,
maintain and expand its operating
capacity, meet its financial obligations,
and pay dividends.
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Reporting Cash Flows
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16-1
The statement of cash flows reports cash flows
from three types of activities:
1. Cash flows from operating activities are cash
flows from transactions that affect net income.
2. Cash flows from investing activities are cash
flows from transactions that affect the investments
in noncurrent assets.
3. Cash flows from financing activities are cash
flows from transactions that affect the equity and
debt of the business.
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Statement of Cash Flows—
NetSolutions
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16-1
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Exhibit 2 Cash Flows
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Sources (increases) of Cash
Operating
Uses (decreases) of Cash
Operating
(receipts from
revenues)
(payments for
expenses)
Investing
Investing
(receipts from sales of
noncurrent assets)
Financing
(receipts from issuing
equity and debt
securities)
16-1
(payments for
acquiring noncurrent
assets)
Financing
(payments for treasury stock, dividends,
and redemption of debt securities)
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Cash Flows from Operating Activities
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16-1
The direct method reports the
sources of operating cash and
the uses of operating cash.
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The indirect method reports the operating cash
flows by beginning with net income and
adjusting it for revenues and expenses that do
not involve the receipt or payment of cash.
16-1
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16-1
 Cash inflows from operating activities
normally arise when cash is received
from customers.
 Cash outflows from operating activities
normally arise when cash is paid to
suppliers for merchandise, supplies,
services and to employees for salaries
and wages.
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16-1
A primary advantage of the direct
method is that it reports the sources
and uses of operating cash flows in
the statement of cash flow.
A primary disadvantage of the direct
method is that the necessary data
may not be readily available and may
be costly to gather.
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16-1
A primary advantage of the indirect
method is that it focuses on the
differences between net income and
cash flows from operations.
Because the data are readily available,
another advantage of the indirect
method is that it is normally less costly
to use than the direct method.
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3 Cash Flows from Operations:
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Indirect
Methods—
16-1
NetSolutions
same amount
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Cash Flows from Investing Activities
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16-1
 Cash inflows from investing activities
normally arise from selling fixed assets,
investments, and intangible assets.
 Cash outflows from investing activities
normally include payments to acquire
fixed assets, investments, and intangible
assets.
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Cash Flows from Financing Activities
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16-1
 Cash inflows from financing activities
normally arise from issuing debt or equity
securities.
 Cash outflows from financing activities
normally include paying cash dividends,
repaying debt, and acquiring treasury
stock.
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Noncash Investing and Financing
Activities
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16-1
Noncash investing and financing
activities are transactions that do not
involve cash. The effect of such
transactions is recorded in a separate
schedule that appears at the bottom of
the statement of cash flows.
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16-1
I M PO RTAN T
The financial statements,
including the statement of
cash flows, should not report
cash flow per share.
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16-1
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Example Exercise 16-1
For each of the following, identify whether it would
be disclosed as an operating, financing, or investing
activity on the statement of cash flows under the
indirect method.
d. Net income
a. Purchase patent
b. Pay cash dividend e. Purchase treasury stock
f. Depreciation expense
c. Disposal of
equipment
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16-1
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Follow My Example 16-1
a. Investing
b. Financing
c. Investing
d. Operating
e. Financing
f. Operating
For Practice: PE 16-1A, PE 16-1B
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16-2
Objective 2
Prepare a statement of
cash flows, using the
indirect method.
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16-2
An efficient approach to preparing the
statement of cash flows is to analyze the
changes in the noncash balance sheet
accounts. The logic of this approach is that a
change in any balance sheet account
(including Cash) can be analyzed in terms of
changes in the other balance sheet accounts.
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16-2
The analysis of Retained Earnings
provides a good starting point for
determining the cash flows from
operating activities, which is the first
section of the statement of cash flows.
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Comparative Balance Sheet
16-2
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(Continued)
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Comparative Balance Sheet
16-2
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(Concluded)
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Retained Earnings
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16-2
The Retained Earnings account for Rundell Inc. reveals
that the balance increased Rp80,000,000 during the year.
ACCOUNT
Date
Retained Earnings
Item
Debit
ACCOUNT NO. 32
Credit
2008
Jan. 1 Balance
Dec. 31 Net income
31 Cash dividends
108,000,000
28,000,000
Balance
Debit
Credit
202,300,000
310,300,000
282,300,000
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16-2
The net income of Rp108,000,000 is entered on the
statement (or working papers).
ACCOUNT
Date
2008
Retained Earnings
Item
Jan. 1 Balance
Dec. 31 Net income
31 Cash dividends
ACCOUNT NO. 32
Debit To
Balance
Credit
Debit
Credit
statement
108,000,000
28,000,000
202,300,000
310,300,000
282,300,000
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Operating Activities— Rundell Inc.
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Cash flows from operating activities:
16-2
Net income
Rp108,000,000
Adjustments to reconcile net income
to net cash flow from operating activities:
This phrase is added to indicate
that accrual basis net income is
being adjusted to arrive at cash
flows from operations.
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Depreciation
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16-2
Next, we need to determine
depreciation expense for the year. If it
isn’t given in the income statement,
sometimes it can be found by
analyzing the various accumulated
depreciation accounts.
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16-2
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The comparative balance sheet (Exhibit 4: Slides 23 and 24)
indicates that Accumulated Depreciation—Building increased
by Rp7,000,000. By analyzing the account we can see that the
increase is the result of the year-end adjusting entry.
ACCOUNT Accumulated Depreciation—Building
Date
Item
Debit
Credit
ACCT.NO.
Balance
Debit
Credit
2008
Jan. 1 Balance
Dec. 31 Depr. for year
7,000,000
58,300,000
65,300,000
to statement
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The offsetting Rp7,000,000 debit is
to an expense for depreciation. The
effect on the income statement was
to reduced net income; however,
this expense did not require an
outflow of cash. Therefore, the
Rp7,000,000 is added back to net
income in determining cash flows
from operating activities.
16-2
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Operating Activities—Rundell Inc.
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Cash flows from operating activities:
16-2
Net income
Rp108,000,000
Adjustments to reconcile net income
to net cash flow from operating activities:
Depreciation
Rp 7,000,000
Amortization is treated in
the same manner as
depreciation.
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Gain on Sale of Land
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The ledger or income statement of Rundell
Inc. indicates that the sale of land resulted
in a gain of Rp12,000,000. This gain
increased net income by Rp12,000,000, yet
cash flows was provided by an investing
activity (selling land) rather than an
operating activity, so the gain is deducted
from net income on the statement of cash
flows.
16-2
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Operating Activities—Rundell Inc.
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Cash flows from operating activities:
16-2
Net income
Rp108,000,000
Adjustments to reconcile net income
to net cash flow from operating activities:
Depreciation
Rp7,000,000
Gain on sale of land
(12,000,000)
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16-2
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Example Exercise 16-2
PT Oktora’s accumulated depreciation increased by
Rp12,000,000, while patents decreased by
Rp3,400,000 between balance sheet dates. There
were no purchases or sales of depreciable or
intangible assets during the year. In addition, the
income statement showed a gain of Rp4,100,000
from sale of land. Reconcile a net income of
Rp50,000,000 to net cash flow from operating
activities.
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16-2
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Follow My Example 16-2
Net income
Rp50,000,000
Adjustments to reconcile net income
from operating activities:
Depreciation
12,000,000
Amortization
3,400,000
Gain on sale of land
(4,100,000)
Net cash flow from operating activities Rp61,300,000
For Practice: PE 16-2A, PE 16-2B
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Changes in Current Operating Assets
and Liabilities
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Next, select current assets and
current liabilities that impact cash
flows and determine their increases
and decreases. Exhibit 5 in the next
slide my prove to be helpful in
determining how to treat increases
and decreases in noncash current
operating assets and current
operating liabilities.
16-2
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Adjustments to Net Income
(Loss) Using the Indirect Method
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16-2
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16-2
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Changes in Current Accounts (in ‘000 Rp)
Accounts
Accounts receivable (net)
Inventories
Accounts payable (mdse.)
Accrued expenses payable
Income taxes payable
December 31
2007
2008
Rp 74,000 Rp 65,000
172,000 180,000
43,500
46,700
26,500
24,300
7,900
8,400
Note that Cash and Dividends Payable are not
included in this analysis.
Increase
Decrease*
9,000
8,000*
3,200*
2,200
500*
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Operating Activities—Indirect Method
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Cash flows from operating activities:
16-2
Net income
Rp108,000,000
Adjustments to reconcile net income
to net cash flow from operating activities:
Depreciation
7,000,000
Gain on sale of land
(12,000,000)
Changes in current operating assets
and liabilities:
Increase in accounts receivable
(9,000,000)
Decrease in inventory
8,000,000
Decrease in accounts payable
(3,200,000)
Increase in accrued expenses
2,200,000
Decrease in income taxes payable
(500,000)
You will notice that increases actually decrease cash flows from
operating activities, and decreases do just the opposite.
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Statement of Cash Flows—
Indirect Method for Rundell Inc.
(Operating Activities Section)
16-2
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Same information as Slide 39, only in final form.
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16-2
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Example Exercise 16-3
Victor Corporation’s comparative balance sheet for
current assets and current liabilities was as follows:
Accounts receivable
Inventory
Accounts payable
Dividends payable
Dec. 31, 2009 Dec. 31, 2008
Rp 6,500,000 Rp 4,900,000
12,300,000
15,000,000
4,800,000
5,200,000
5,000,000
4,000,000
Adjust net income of Rp70,000,000 for changes
in operating assets and liabilities.
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16-2
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Follow My Example 16-3
Net income
Rp70,000,000
Adjustments to reconcile net income to net
cash from from operating activities:
Increase in accounts receivable
(1,600,000)
Decrease in inventory
2,700,000
Decrease in accounts payable
(400,000)
Net cash flow from operating activities Rp70,700,000
For Practice: PE 16-3A, PE 16-3B
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16-2
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Example Exercise 16-4
Omicron, Inc. reported the following data:
Net income
Rp120,000,000
Depreciation expense
12,000,000
Loss on disposal of equipment 15,000,000
Increase in Accounts receivable 5,000,000
Decrease in Accounts payable (2,000,000)
Prepare the cash flow for operating activities
section of the statement of cash flows using the
indirect method.
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16-2
Follow My Example 16-4
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Cash flows from operating activities:
Net income
Rp120,000,000
Adjustments to reconcile net income
to net cash flow from operating activities:
Depreciation
12,000,000
Loss from disposal of equipment
15,000,000
Changes in current operating assets
and liabilities:
Increase in accounts receivable
(5,000,000)
Decrease in accounts payable
(2,000,000)
Net cash flow from operating activities Rp140,000,000
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For Practice: PE 16-4A, PE 16-4B
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16-2
Cash Flows Used for Payment of
Dividends
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ACCOUNT
Date
2008
Jan.
1
10
June 20
July 10
Dec. 20
Dividends Payable
Item
Balance
Cash paid
Dividends declared
Cash paid
Dividends declared
Debit
ACCOUNT NO.
Credit
10,000,000
14,000,000
14,000,000
14,000,000
Balance
Debit
Credit
10,000,000
—
14,000,000
—
14,000,000
Note that while Rp28,000,000 in dividends were
declared, only Rp24,000,000 were paid during the year.
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16-2
Because paying of dividends
affects equity and is an
outflow of cash, it is a
negative Rp24,000,000 cash
flows from financing
activities transaction.
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16-2
Common Stock
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Common Stock increased by Rp8,000,000.
ACCOUNT
Date
Common Stock
Item
ACCOUNT NO.
Debit
Credit
2008
Jan. 1 Balance
Nov. 1 4,000 shares issued/cash
8,000,000
Balance
Debit
Credit
16,000,000
24,000,000
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16-2
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Analyzing the two accounts together, we can determine
that the 4,000 shares were sold for Rp48,000,000.
ACCOUNT
Date
Paid-in Capital in Excess of Par—Common Stock
Item
Debit
Credit
2008
Jan. 1 Balance
Nov. 1 4,000 shares issued/cash
40,000
Balance
Debit
Credit
80,000,000
120,000,000
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16-2
Issuing common stock affects
equity; therefore, we have a
positive Rp48,000,000 cash flows
from financing activities item.
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16-2
Bonds Payable
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Bonds Payable decreased by Rp50,000,000.
ACCOUNT
Date
Bonds Payable
Item
ACCOUNT NO.
Debit
2008
Jan. 1 Balance
June 30 Retired by payment of
cash at face amount
Credit
Balance
Debit
Credit
150,000,000
50,000,000
100,000,000
50
50
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16-2
Retiring bonds is a cash outflow
reported as a negative item
under cash flows from
financing activities.
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16-2
Building
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By examining the Building account, we can determine that
Rundell Inc. bought a building for Rp60,000,000 cash.
ACCOUNT
Date
Building
Item
ACCOUNT NO.
Debit
2008
Jan. 1 Balance
Dec. 27 Purchased for cash
60,000,000
Credit
Balance
Debit
Credit
200,000,000
260,000,000
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16-2
Purchasing a building involves a
noncurrent asset, so this is a
negative cash flows from
investing activity.
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16-2
Land
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The Rp45,000,000 decline in the Land account resulted
from two separate transactions: a sale and a purchase.
ACCOUNT
Land
Date
2008
Jan.
Item
ACCOUNT NO.
Debit
Credit
1 Balance
June 8 Sold for Rp72,000,000 cash
60,000,000
Oct. 12 Purchased for Rp15,000,000
cash
15,000,000
Balance
Debit
Credit
125,000,000
65,000,000
80,000,000
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16-2
The first transaction, the sale of
land, is classified as a positive
cash flows from investing activity
because land is a noncash asset.
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16-2
The Rp12,000,000 gain was
recorded earlier on Slide 34
as an operating activity. The
purchase of land also is an
investing activity.
Click the button to view
Slide 34. To return to
this slide, type “56” and
press the “Enter” key.
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16-2
The second transaction is the
purchase of land for cash of
Rp15,000,000. This
transaction is reported as an
outflow of cash in the cash
flows from investing
activities section.
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Statement of Cash Flows—
Indirect Method for Rundell Inc.
(Partial Statement)
16-2
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Statement of Cash Flows—
Indirect Method for Rundell Inc.
(Partial Statement)
The ending balance in the Cash account
should match this amount.
16-2
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16-2
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Example Exercise 16-5
Alpha Corporation purchased land for
Rp125,000,000. Later in the year the company
sold land with a book value of Rp165,000,000
for Rp200,000,000. How are the effects of
these transactions are reported on the statement
of cash flows?
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16-2
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Follow My Example 16-5
The gain on sale of land is deducted
from net income as shown below:
Gain on sale of land
Rp(35,000,000)
The purchase and sale of land is
reported as part of cash inflow form
investing activities as shown below:
Cash received for sale of land Rp200,000,000
Cash paid for purchase of land (125,000,000)
For Practice: PE 16-5A, PE 16-5B
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16-3
Objective 3
Prepare a statement of
cash flows, using the
direct method.
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The Direct Method
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16-3
The final amount for cash
flows from operating
activities will be the same
whether the direct or
indirect approach is used.
The methods differ in
how the data are obtained,
analyzed, and reported.
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Exhibit 8
16-3
Data for Direct Method
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PT Rudy Pelangi
Schedule of Changes in Current Accounts (in ‘000 Rp)
Accounts
December 31
2008
2007
Increase
Decrease*
Cash
Rp 97,500 Rp 26,000 Rp 71,500
Accounts receivable (net)
74,000
65,000
9,000
Inventories
172,000
180,000
8,000*
Accounts payable (merchandise
creditors)
43,500
46,700
3,200*
Accrued expenses payable (operating
expenses)
26,500
24,300
2,200
Income taxes payable
7,900
8,400
500*
Dividends payable
14,000
10,000
4,000
(Continued)
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PT Rudy Pelangi
Income Statement
For the Year Ended December 31, 2008 (in ‘000 Rp)
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Sales
Cost of merchandise sold
Gross profit
Operating expenses:
Depreciation expense
Other operating expenses
Total operating expenses
Income from operations
Other income:
Gain on sale of land
Other expense:
Interest expense
Income before income tax
Income tax
Net income
(Concluded)
16-3
Rp1,180,000
790,000
Rp 390,000
Rp 7,000
196,000
203,000
Rp 187,000
Rp 12,000
8,000
4,000
Rp 191,000
83,000
Rp 108,000
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Cash Received from Customers
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16-3
The Rp1,180,000,000 of sales
for Rundell Inc. is reported
using the accrual method. An
adjustment is necessary to
convert the sales reported on
the income statement to the
cash method.
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Cash Received from Customers
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Rudy Pelangi
16-3
Income Statement
For the Year Ended December 31, 2008 (in ‘000 Rp)
Sales
Rp1,180,000
Cost of merchandise sold
790,000
Cash received
Gross profit
Rp 390,000
Changes
Operating expenses:from customers
Depreciation expense
Rp 7,000
Other operatingSales
expenses
196,000
Rp1,180,000
Total operating expenses
203,000
Increase in accounts rec. Rp (9,000)
Income from operations
187,000
Other income:
Cash received
Gain on sale of land
from customers Rp 12,000
Rp1,171,000
Other expense:
Interest expense
8,000
4,000
Income before income tax
Rp 191,000
Income tax
83,000
Net income
Rp 108,000
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Cash Received from Customers
16-3
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Rudy Pelangi
CASH
Income Statement
For the Year Ended December 31, 2008 (in ‘000 Rp)
Sales
Rp1,180,000
Cost of merchandise sold
790,000
Cash received
Gross profit
Rp 390,000
Changes
Operating expenses:from customers
Depreciation expense
Rp 7,000
Other operatingSales
expenses
196,000
Rp1,180,000
Total operating expenses
203,000
Increase in accounts rec. Rp (9,000)
Income from operations
187,000
Other income:
Cash received
Gain on sale of land
from customers Rp 12,000
Rp1,171,000
Other expense:
Interest expense
8,000
4,000
Income before income tax
Rp 191,000
Income tax
83,000
Net income
Rp 108,000
BASIS
Rp1,171,000
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16-3
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Example Exercise 16-6
Sales reported on the income statement were
Rp350,000,000. The accounts receivable
balance declined Rp8,000,000 over the year.
Determine the amount of cash received from
customers.
Follow
My Example 16-6
Sales
Rp350,000,000
Add decrease in accounts receivable 8,000,000
Cash received from customer Rp358,000,000
For Practice: PE 16-6A, PE 16-6B
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Cash Payments for Merchandise
16-3
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Rudy Pelangi
CASH
Income Statement
For the Year Ended December 31, 2008 (in ‘000 Rp)
Sales
Rp1,180,000
Cost of merchandise sold
790,000
Gross profit
Rp 390,000
Operating expenses:
Cash payments for
Depreciation expense
Rp 7,000Changes
merchandise
Other operating expenses
196,000
Total operating
expenses
203,000
Cost of merchandise
sold
Rp790,000
Income from operations
Rp 187,000
Other income:
Gain on sale of land
Rp 12,000
Other expense:
Interest expense
8,000
4,000
Income before income tax
Rp 191,000
Income tax
83,000
Net income
Rp 108,000
BASIS
Rp1,171,000
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16-3
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Rudy Pelangi
CASH
Income Statement
For the Year Ended December 31, 2008 (in ‘000 Rp)
Sales
Rp1,180,000
Cost of merchandise sold
790,000
Gross profit
Rp 390,000
Operating expenses:
Cash payments for
Depreciation expense
Rp 7,000Changes
merchandise
Other operating expenses
196,000
Total operating
expenses
203,000
Cost of merchandise
sold
Rp790,000
Income from operations
Rp
187,000
Decrease in inventories
(8,000)
Other income:Decrease in accounts payable
3,200
Gain on sale of land
Rp 12,000
Cash
payments
for
Other expense:
merchandise
Rp785,2004,000
Interest expense
8,000
Income before income tax
Rp 191,000
Income tax
83,000
Net income
Rp 108,000
BASIS
Rp1,171,000
71
71
72
16-3
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Master
title
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Rudy Pelangi
CASH
Income Statement
For the Year Ended December 31, 2008 (in ‘000 Rp)
Sales
Rp1,180,000
Cost of merchandise sold
790,000
Gross profit
Rp 390,000
Operating expenses:
Cash payments for
Depreciation expense
Rp 7,000Changes
merchandise
Other operating expenses
196,000
Total operating
expenses
203,000
Cost of merchandise
sold
Rp790,000
Income from operations
Rp
187,000
Decrease in inventories
(8,000)
Other income:Decrease in accounts payable
3,200
Gain on sale of land
Rp 12,000
Cash
payments
for
Other expense:
merchandise
Rp785,2004,000
Interest expense
8,000
Income before income tax
Rp 191,000
Income tax
83,000
Net income
Rp 108,000
BASIS
Rp1,171,000
(785,200)
72
72
73
16-3
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Example Exercise 16-7
Cost of merchandise sold reported on the income
statement was Rp145,000,000. The accounts payable
balance increased Rp4,000,000, and the inventory
balance increased by Rp9,000,000 over the year.
Determine the amount of cash paid for merchandise.
Follow My Example 16-7
Cost of merchandise sold
Add increase in inventories
Deduct increase in accounts payable
Cash payments for merchandise
For Practice: PE 16-7A, PE 16-7B
Rp145,000,000
9,000,000
(4,000,000)
Rp150,000,000
73
73
74
Cash Payments for Operating Expenses
16-3
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Master
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Rudy Pelangi
CASH
Income Statement
For the Year Ended December 31, 2008 (in ‘000 Rp)
Sales
Cost of merchandise sold
Gross profit
Operating expenses:
Depreciation expense
Other operating expenses
Total operating expenses
Income from operations
Other income:
Gain on sale of land
Other expense:
Interest expense
Income before income tax
Income tax
Net income
Rp1,180,000
790,000
Rp 390,000
BASIS
Rp1,171,000
(785,200)
Rp 7,000
196,000
203,000
Rp 187,000
Rp 12,000
8,000
4,000
Rp 191,000
83,000
Rp 108,000
74
74
75
16-3
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Master
title
style
Rudy Pelangi
CASH
Income Statement
For the Year Ended December 31, 2008 (in ‘000 Rp)
Sales
Rp1,180,000
Cost of merchandise sold
790,000
Gross profit
Rp 390,000
Operating expenses:
Depreciation expense
Rp 7,000
Other operating expenses
196,000
Total operating expenses
203,000
There is no cashRpflow
for
Income from operations
187,000
Other income:
depreciation expense.
Gain on sale of land
Rp 12,000
Other expense:
Interest expense
8,000
4,000
Income before income tax
Rp 191,000
Income tax
83,000
Net income
Rp 108,000
BASIS
Rp1,171,000
(785,200)
0
75
75
76
16-3
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Master
title
style
Rudy Pelangi
CASH
Income Statement
For the Year Ended December 31, 2008 (in ‘000 Rp)
Sales
Rp1,180,000
Cost of merchandise sold
790,000
Gross profit
Rp 390,000
Operating expenses:
Depreciation expense
Rp 7,000
Other operating expenses
196,000
Total operating expenses
203,000
IncomeCash
from payments
operations for
Rp 187,000
operating expenses
Other income:
Changes
Changes
Gain on sale of land
Rp 12,000
Operating
expenses
(other
than
Other expense:
depreciation)
Rp196,000
Interest
expense
8,000
4,000
Income
before in
income
tax expenses
Rp 191,000
Increase
accrued
(2,200)
Income
taxpayments for operating
83,000
Cash
Net income
Rp 108,000
expenses
Rp193,800
BASIS
Rp1,171,000
(785,200)
0
(193,800)
76
76
77
Gain on Sale of Land
16-3
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Rudy Pelangi.
CASH
Income Statement
For the Year Ended December 31, 2008 (in ‘000 Rp)
Sales
Rp1,180,000
The
gain
on
sale
of
land
of
Cost of merchandise sold
790,000
Rp12,000,000 is included in the Rp 390,000
Gross profit
Operating
expenses:
proceeds
from the sale of land, which
Depreciation expense
Rp 7,000
is
reported
as
part
of
cash
flows
from
Other operating expenses
196,000
investing
activities.
Total operating
expenses
203,000
Income from operations
Rp 187,000
Other income:
Gain on sale of land
Rp 12,000
Other expense:
Interest expense
8,000
4,000
Income before income tax
Rp 191,000
Income tax
83,000
77
Net income
Rp 108,000
BASIS
Rp1,171,000
(785,200)
0
(193,800)
0
To avoid
confusion, page
numbers for the
remaining77
slides
are centered on
the slides.
78
Gain on Sale of Land
16-3
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Master
title
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Rudy Pelangi
CASH
Income Statement
For the Year Ended December 31, 2008 (in ‘000 Rp)
Sales
Rp1,180,000
Cost of merchandise sold
790,000
Cash paid for
Gross profit
Rp 390,000
Changes
interest
expense
Operating expenses:
Depreciation
expense
Rp 7,000
8,000
Interest expense
Other operating expenses
196,000
+/- decrease/increase
Total
operating expensesin
203,000
payable
0 187,000
Income from
operations
Rp
Other income:
$8,000
Gain Cash
on salepayments
of land for interest Rp 12,000
Other expense:
Interest expense
8,000
4,000
Income before income tax
Rp 191,000
Income tax
83,000
78
Net income
Rp 108,000
BASIS
Rp1,171,000
(785,200)
0
(193,800)
0
(8,000)
78
79
Cash Payments for Income Taxes
16-3
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Master
title
style
Rudy Pelangi
CASH
Income Statement
For the Year Ended December 31, 2008 (in ‘000 Rp)
Sales
Rp1,180,000
Cost of merchandise sold
790,000
Gross profit
Rp 390,000
Operating expenses:
Cash
payments
Depreciation
expense
Rp 7,000
Changes
for
income
taxes
Other operating expenses
196,000
Total
operating
expenses
Income
tax expense
Rp83,000203,000
Income from operations
Rp 187,000
Add decrease in income
Other income:
taxes payable
500
Gain on sale of land
Rp 12,000
Other expense:
Cash payments for income tax Rp83,500
Interest expense
8,000
4,000
Income before income tax
Rp 191,000
Income tax
83,000
79
Net income
Rp 108,000
BASIS
Rp1,171,000
(785,200)
0
(193,800)
0
(8,000)
79
(83,500)
80
16-3
Cash Payments for Income Taxes
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Master
title
style
Rudy Pelangi
CASH
Income Statement
For the Year Ended December 31, 2008 (in ‘000 Rp)
Sales
Cost of merchandise sold
Gross profit
Operating expenses:
Depreciation expense
Other operating expenses
Total operating expenses
Income from operations
Other income:
Gain on sale of land
Other expense:
Interest expense
Income before income tax
Income tax
Net income
Rp1,180,000
790,000
Rp 390,000
BASIS
Rp1,171,000
(785,200)
0
(193,800)
Rp 7,000
196,000
203,000
Rp 187,000
0
Rp 12,000
8,000
80
4,000
Rp 191,000
83,000
Rp 108,000
(8,000)
80
(83,500)
Rp 100,500
81
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Statement of Cash Flows—
Direct Method (Operating
Activities Section)
(Continued)
16-3
81
81
82
Statement of Cash Flows—
Direct Method (Reconciliation)
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A reconciliation is required when
the direct method is used.
16-3
82
82
83
Financial Analysis and Interpretation
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16-3
Free cash flow is a measure of
operating cash flow available for
corporate purposes after providing
sufficient fixed asset additions to
maintain current productive
capacity and dividends.
83
84
Free Cash Flow
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16-3
Cash flow from operations
Less: Investments in fixed assets to
maintain current production
Free cash flow
Positive free cash flow is considered favorable.
A company that has free cash flow is able to
fund internal growth, retire debt, pay
dividends, and enjoy financial flexibility.
84