CASH FLOW STATEMENT - Pasewark Accounting：现金流量表pasewark会计.docxVIP

.MODULE 5-2THE CASH FLOW STATEMENTCASH FLOW STATEMENTStatement of Cash FlowCash Flow ClassificationsOperatingInvesting FinancingCash Flow Example (Lowe’s and Southwest Airlines) STATEMENT OF CASH FLOW( FAS 95, 1985)Purpose: The Cash Flow Statement shows:where cash is coming fromwhere cash is goingthe change in cash during the periodThree (maybe six) parts:Operating activitiesInvesting activitiesFinancing activitiesSourcesUsesOperatingInvestingFinancingOPERATING ACTIVITIESCash effects of transactions that determine net income.Hint: Relate to income statement accounts. Sources: Cash SalesCollection of accounts receivableUses: payments to:SuppliersEmployeesGovernment for taxLenders for interestCash Flow from Operations Methods of PresentationGAAP allows two methods of presentation for Cash Flow from Operations Direct methodIndirect methodReality Check: SFAS 95 states a preference for the direct method; however, 98.8% of major corporations use the indirect method.Recent Developments: In June of 2008, a joint committee of the US FASB and the IASB recommendedthe direct method be the only allowable format. Cash Flow from OperationsMethods of PresentationDIRECT METHODProcedure:Restate income statement on the cash basisFormat:Cash from Sales$1,000,000Cash Paid to Suppliers-700,000Cash Paid to Employees-100,000Cash Paid in Interest-50,000Cash Paid in Taxes-60,000Cash Flow from Operations$90,000INDIRECT METHODProcedure:Begin with net income and adjust for all non-cash revenues and expenses.Format:Net Income$70,000Depreciation+65,000Increase in Accounts Receivable*-55,000Decrease in Inventory*+10,000Increase in Accounts Payable*+20,000Decrease in Taxes Payable*-20,000Cash Flow from Operations$90,000* see next page for interpretationINTERPRETATION OF CHANGES IN CURRENT ACCOUNTS IN AN INDIRECT CASH FLOW STATEMENTChange in Current AccountImplied Effect on CashInterpretationIncrease in Accounts ReceivableDecreaseIncluded in sales and income this year; however, the cash wil