Managerial Accounting Statement of Cash Flows Indirect Method

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Construction of cash flow statement using the indirect method

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Managerial Accounting:

Managerial Accounting Statement of Cash Flows Indirect method parkbenchtutors.com

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Importance of cash flows Can the company pay all bills due and debt due at any time? Is the company generating sufficient cash? Is the company likely to be able to pay a cash dividend? Cash flow statements help answer these questions

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Types of business activity Operating Activities Investing Activities Financing Activities

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Operating Activities Cash received from sales Cash received as interest Cash received from dividend income Cash paid for purchases Cash paid for expenses Cash paid for taxes Cash paid as interest

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Investing Activities Cash received from sales of plant and equipment Cash received from sale of land or building Cash paid to buy plant and equipment Cash paid to buy land or building Cash paid to buy business

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Financing Activities Cash received from sale of bonds Cash received from line of credit Cash received from issue of common stock Cash paid out as dividends Cash paid out to retire long term debt

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Baa Baa Woolen Company Income statement for year ended December 31st 2012 Sales 657000 Cost of goods sold 452000 Gross profit 205000 Operating expenses Insurance 16000 Wages 45000 Depreciation 17000 Loss on sale of equipment 2500 Income from operations 124500 Interest expense 16000 Income before taxes 108500 Income taxes 27125 Net income 81375

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Balance Sheet December 31st 2012 2012 2011 Assets Current Assets Cash 20300 58000 Receivables 62000 29800 Inventory 4700 14700 Prepaid insurance 1400 1700 Total current assets 88400 104200 Property, plant and equipment 143000 117000 Accumulated depreciation -43000 -28000 Total assets 188400 193200 Liabilities and Equity Current Liabilities Accounts payable 17600 14500 Accrued wages 6500 5900 Taxes payable 12500 11000 Total current liabilities 36600 31400 Long term debt 60000 100000 Total liabilities 96600 131400 Stockholders equity Common stock 45000 45000 Retained earnings 46800 16800 Total stockholders equity 91800 61800 Total liabilitiex and equity 188400 193200

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Statement of cash flow indirect method December 31st 2012 Operating Activities Net Income Adjustments of net income to cash basis Depreciation Loss of equipment on sale Change in receivables Change in inventory Change in prepaid insurance Change in accounts payable Change accrued wages Change taxes payable Net cash from operating activities

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Baa Baa Woolen Company Income statement for year ended December 31st 2012 Sales 657000 Cost of goods sold 452000 Gross profit 205000 Operating expenses Insurance 16000 Wages 45000 Depreciation 17000 Loss on sale of equipment 2500 Income from operations 124500 Interest expense 16000 Income before taxes 108500 Income taxes 27125 Net income 81375

PowerPoint Presentation:

Statement of cash flow indirect method December 31st 2012 Operating Activities Net Income 81375 Adjustments of net income to cash basis Depreciation Loss of equipment on sale Change in receivables Change in inventory Change in prepaid insurance Change in accounts payable Change accrued wages Change taxes payable Net cash from operating activities

PowerPoint Presentation:

Baa Baa Woolen Company Income statement for year ended December 31st 2012 Sales 657000 Cost of goods sold 452000 Gross profit 205000 Operating expenses Insurance 16000 Wages 45000 Depreciation 17000 Loss on sale of equipment 2500 Income from operations 124500 Interest expense 16000 Income before taxes 108500 Income taxes 27125 Net income 81375

PowerPoint Presentation:

Statement of cash flow indirect method December 31st 2012 Operating Activities Net Income 81375 Adjustments of net income to cash basis Depreciation 17000 Loss of equipment on sale Change in receivables Change in inventory Change in prepaid insurance Change in accounts payable Change accrued wages Change taxes payable Net cash from operating activities

PowerPoint Presentation:

Baa Baa Woolen Company Income statement for year ended December 31st 2012 Sales 657000 Cost of goods sold 452000 Gross profit 205000 Operating expenses Insurance 16000 Wages 45000 Depreciation 17000 Loss on sale of equipment 2500 Income from operations 124500 Interest expense 16000 Income before taxes 108500 Income taxes 27125 Net income 81375

PowerPoint Presentation:

Statement of cash flow indirect method December 31st 2012 Operating Activities Net Income 81375 Adjustments of net income to cash basis Depreciation 17000 Loss of equipment on sale 2500 Change in receivables Change in inventory Change in prepaid insurance Change in accounts payable Change accrued wages Change taxes payable Net cash from operating activities

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Balance Sheet December 31st 2012 2012 2011 Assets Current Assets Cash 20300 58000 Receivables 62000 29800 Inventory 4700 14700 Prepaid insurance 1400 1700 Total current assets 88400 104200 Property, plant and equipment 143000 117000 Accumulated depreciation -43000 -28000 Total assets 188400 193200 Liabilities and Equity Current Liabilities Accounts payable 17600 14500 Accrued wages 6500 5900 Taxes payable 12500 11000 Total current liabilities 36600 31400 Long term debt 60000 100000 Total liabilities 96600 131400 Stockholders equity Common stock 45000 45000 Retained earnings 46800 16800 Total stockholders equity 91800 61800 Total liabilitiex and equity 188400 193200

PowerPoint Presentation:

Statement of cash flow indirect method December 31st 2012 Operating Activities Net Income 81375 Adjustments of net income to cash basis Depreciation 17000 Loss of equipment on sale 2500 Increase in receivables -32200 Change in inventory Change in prepaid insurance Change in accounts payable Change accrued wages Change taxes payable Net cash from operating activities

PowerPoint Presentation:

Balance Sheet December 31st 2012 2012 2011 Assets Current Assets Cash 20300 58000 Receivables 62000 29800 Inventory 4700 14700 Prepaid insurance 1400 1700 Total current assets 88400 104200 Property, plant and equipment 143000 117000 Accumulated depreciation -43000 -28000 Total assets 188400 193200 Liabilities and Equity Current Liabilities Accounts payable 17600 14500 Accrued wages 6500 5900 Taxes payable 12500 11000 Total current liabilities 36600 31400 Long term debt 60000 100000 Total liabilities 96600 131400 Stockholders equity Common stock 45000 45000 Retained earnings 46800 16800 Total stockholders equity 91800 61800 Total liabilitiex and equity 188400 193200

PowerPoint Presentation:

Statement of cash flow indirect method December 31st 2012 Operating Activities Net Income 81375 Adjustments of net income to cash basis Depreciation 17000 Loss of equipment on sale 2500 Increase in receivables -32200 Decrease in inventory 10000 Change in prepaid insurance Change in accounts payable Change accrued wages Change taxes payable Net cash from operating activities

PowerPoint Presentation:

Balance Sheet December 31st 2012 2012 2011 Assets Current Assets Cash 20300 58000 Receivables 62000 29800 Inventory 4700 14700 Prepaid insurance 1400 1700 Total current assets 88400 104200 Property, plant and equipment 143000 117000 Accumulated depreciation -43000 -28000 Total assets 188400 193200 Liabilities and Equity Current Liabilities Accounts payable 17600 14500 Accrued wages 6500 5900 Taxes payable 12500 11000 Total current liabilities 36600 31400 Long term debt 60000 100000 Total liabilities 96600 131400 Stockholders equity Common stock 45000 45000 Retained earnings 46800 16800 Total stockholders equity 91800 61800 Total liabilitiex and equity 188400 193200

PowerPoint Presentation:

Statement of cash flow indirect method December 31st 2012 Operating Activities Net Income 81375 Adjustments of net income to cash basis Depreciation 17000 Loss of equipment on sale 2500 Increase in receivables -32200 Decrease in inventory 10000 Decrease in prepaid insurance 300 Change in accounts payable Change accrued wages Change taxes payable Net cash from operating activities

PowerPoint Presentation:

Balance Sheet December 31st 2012 2012 2011 Assets Current Assets Cash 20300 58000 Receivables 62000 29800 Inventory 4700 14700 Prepaid insurance 1400 1700 Total current assets 88400 104200 Property, plant and equipment 143000 117000 Accumulated depreciation -43000 -28000 Total assets 188400 193200 Liabilities and Equity Current Liabilities Accounts payable 17600 14500 Accrued wages 6500 5900 Taxes payable 12500 11000 Total current liabilities 36600 31400 Long term debt 60000 100000 Total liabilities 96600 131400 Stockholders equity Common stock 45000 45000 Retained earnings 46800 16800 Total stockholders equity 91800 61800 Total liabilitiex and equity 188400 193200

PowerPoint Presentation:

Statement of cash flow indirect method December 31st 2012 Operating Activities Net Income 81375 Adjustments of net income to cash basis Depreciation 17000 Loss of equipment on sale 2500 Increase in receivables -32200 Decrease in inventory 10000 Decrease in prepaid insurance 300 Increase in accounts payable 3100 Change accrued wages Change taxes payable Net cash from operating activities

PowerPoint Presentation:

Balance Sheet December 31st 2012 2012 2011 Assets Current Assets Cash 20300 58000 Receivables 62000 29800 Inventory 4700 14700 Prepaid insurance 1400 1700 Total current assets 88400 104200 Property, plant and equipment 143000 117000 Accumulated depreciation -43000 -28000 Total assets 188400 193200 Liabilities and Equity Current Liabilities Accounts payable 17600 14500 Accrued wages 6500 5900 Taxes payable 12500 11000 Total current liabilities 36600 31400 Long term debt 60000 100000 Total liabilities 96600 131400 Stockholders equity Common stock 45000 45000 Retained earnings 46800 16800 Total stockholders equity 91800 61800 Total liabilitiex and equity 188400 193200

PowerPoint Presentation:

Statement of cash flow indirect method December 31st 2012 Operating Activities Net Income 81375 Adjustments of net income to cash basis Depreciation 17000 Loss of equipment on sale 2500 Increase in receivables -32200 Decrease in inventory 10000 Decrease in prepaid insurance 300 Increase in accounts payable 3100 Increase accrued wages 600 Change taxes payable Net cash from operating activities

PowerPoint Presentation:

Balance Sheet December 31st 2012 2012 2011 Assets Current Assets Cash 20300 58000 Receivables 62000 29800 Inventory 4700 14700 Prepaid insurance 1400 1700 Total current assets 88400 104200 Property, plant and equipment 143000 117000 Accumulated depreciation -43000 -28000 Total assets 188400 193200 Liabilities and Equity Current Liabilities Accounts payable 17600 14500 Accrued wages 6500 5900 Taxes payable 12500 11000 Total current liabilities 36600 31400 Long term debt 60000 100000 Total liabilities 96600 131400 Stockholders equity Common stock 45000 45000 Retained earnings 46800 16800 Total stockholders equity 91800 61800 Total liabilitiex and equity 188400 193200

PowerPoint Presentation:

Statement of cash flow indirect method December 31st 2012 Operating Activities Net Income 81375 Adjustments of net income to cash basis Depreciation 17000 Loss of equipment on sale 2500 Increase in receivables -32200 Decrease in inventory 10000 Decrease in prepaid insurance 300 Increase in accounts payable 3100 Increase accrued wages 600 Increase taxes payable 1500 Net cash from operating activities

PowerPoint Presentation:

Statement of cash flow indirect method December 31st 2012 Operating Activities Net Income 81375 Adjustments of net income to cash basis Depreciation 17000 Loss of equipment on sale 2500 Increase in receivables -32200 Decrease in inventory 10000 Decrease in prepaid insurance 300 Increase in accounts payable 3100 Increase accrued wages 600 Increase taxes payable 1500 Net cash from operating activities 84175

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Investing and Financing Procedures for preparation Same for direct and indirect methods

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Notes to accounts: Loom purchased 10000 Loom sold

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Depreciation relating to sale Accumulated depreciation start 28000 Accumulated depreciation end 43000 Depreciation expense 17000 Accumulated depreciation sale 2000

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Baa Baa Woolen Company Income statement for year ended December 31st 2012 Sales 657000 Cost of goods sold 452000 Gross profit 205000 Operating expenses Insurance 16000 Wages 45000 Depreciation 17000 Loss on sale of equipment 2500 Income from operations 124500 Interest expense 16000 Income before taxes 108500 Income taxes 27125 Net income 81375

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Cash from sale equipment Original cost 10000 Accumulated depreciation 2000 Book value 8000 Loss on sale 2500 Sale 5500

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Investing Activities Proceeds from sale of equipment 5500 Purchase of equipment Net cash used for investing activities

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Purchase of equipment Equipment at start 117000 Equipment at end 143000 Cost of equipment sold 10000 Equipment purchased 36000

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Investing Activities Proceeds from sale of equipment 5500 Purchase of equipment 36000 Net cash used for investing activities 30500

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Liabilities and Equity Current Liabilities Accounts payable 17600 14500 Accrued wages 6500 5900 Taxes payable 12500 11000 Total current liabilities 36600 31400 Long term debt 60000 100000 Total liabilities 96600 131400 Stockholders equity Common stock 45000 45000 Retained earnings 46800 16800 Total stockholders equity 91800 61800 Total liabilitiex and equity 188400 193200

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Financing Activities Reduction long term debt 40000 Dividends paid Net cash used in Financing

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Dividends Retained earnings start 16800 Retained earnings end 46800 Net income 81375 Cash payment dividend 51375

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Financing Activities Reduction long term debt 40000 Dividends paid 51375 Net cash used in Financing 91375

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Statement of cash flow indirect method December 31st 2012 Operating Activities Net Income 81375 Adjustments of net income to cash basis Depreciation 17000 Loss of equipment on sale 2500 Increase in receivables -32200 Decrease in inventory 10000 Decrease in prepaid insurance 300 Increase in accounts payable 3100 Increase accrued wages 600 Increase taxes payable 1500 Net cash from operating activities 84175 Investing Activities Proceeds from sale of equipment 5500 Purchase of equipment 36000 Net cash used for investing activities 30500 Financing Activities Reduction long term debt 40000 Dividends paid 51375 Net cash used in Financing 91375 Net increase / decrease during year -37700 Cash at start of year 58000 Cash at end of year 20300

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Net increase / decrease cash during year -37700 Cash at start of year 58000 Cash at end of year 20300 Balance Sheet December 31st 2012 2012 2011 Assets Current Assets Cash 20300 58000 Check results

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