23 – The Cash Flow
Statement
CORPORATE
FINANCIAL
REPORTING
·1
Dilutive Securities and EPS
THE CASH FLOW STATEMENT
(FAS 95 or ASC 230)
Operating activities
xxxx
Investing activities
xxxx
Financing activities
xxxx
Increase/decrease in cash
Cash, beginning of year
xxxx
xxx
Cash, end of the year
xxxx
·2
THE CASH FLOW STATEMENT
Purpose of the CFS:
To provide information about a
company’s cash receipts and cash
payments during a period organized in a rational manner.
·3
THE CASH FLOW STATEMENT
Operating activities
◊ normal day-to-day income producing activities
(including buying/selling Trading Securities)
Investing activities
◊ acquiring/disposing of non-current assets (including
buying/selling Securities Available For Sale) &
◊ lending and being repaid the principal amount loaned
Financing activities
◊ borrowing and repaying the principal amount borrowed &
◊ all cash transactions with shareholders
·4
THE CASH FLOW STATEMENT
Suppose you saw the following under ASSETS
on a company’s balance sheet: (in $ 000)
2013
2012
Land
10,000
4,000
and under LIABILITIES there were no
liabilities for a land purchase.
·5
THE CASH FLOW STATEMENT
Suppose you saw the following under ASSETS on
a company’s balance sheet: (in $ 000)
2013
2012
Land
10,000
4,000
and under LIABILITIES there was:
2013
Mortgage payable for land 5,000
2012
-0·6
THE CASH FLOW STATEMENT
Suppose you saw the following under ASSETS
on a company’s balance sheet: (in $ 000)
2013
2012
Land
10,000
24,000
And on the 2013 financial statements there was
no mention of a land impairment loss.
·7
THE CASH FLOW STATEMENT
Suppose you saw the following under ASSETS on
a company’s balance sheet: (in $ 000)
2013
2012
Land
10,000
24,000
Nothing about a receivable from sale of land.
And on the 2013 income statement you saw
Gain on land sale
5,000
·8
THE CASH FLOW STATEMENT
Suppose you saw the following under ASSETS on
a company’s balance sheet: (in $ 000)
Land
2013
10,000
Mortgage receivable-land
8,000
2012
24,000
0
And on the 2013 income statement you saw
Gain on land sale
5,000
·9
THE CASH FLOW STATEMENT
Suppose you saw the following under ASSETS on
a company’s balance sheet: (in $ 000)
2013
2012
Land
10,000
24,000
And on the 2013 income statement you saw
Land impairment loss
14,000
· 10
THE CASH FLOW STATEMENT
Suppose you saw the following under OWNERS’
EQUITY on a company’s balance sheet: (in $ 000)
2013
Capital stock
10,000
Additional paid in capital 14,000
2012
7,000
9,000
· 11
THE CASH FLOW STATEMENT
For the most part, that is the
approach companies take to
prepare the
Investing Activities and the
Financial Activities parts of their
cash flow statements - they
compare balances on the balance
sheet.
· 12
THE CASH FLOW STATEMENT
But for Operating Activities,
which is based, in part, on the
income statement, companies
have a choice:
the direct method or
the indirect method,
both give you the same answer,
using different approaches.
· 13