STATEMENT OF CASH FLOWS

OPERATING ACTIVITIES
Inflows Outflows
Sales of Goods Payments for purchases of inventories
Revenue from Services Payments for operating expenses (salaries, rent, insurance, etc.)
Returns on interest earnings assets (interest) Payments for purchases from suppliers other than inventory
Returns on equity securities (dividends) Payments for lenders (interest)
Receipts from contracts held for dealing and trading purposes Payments for taxes unless identified with financing and investing
Tax refund unless identified with financing and investing activities activities
INVESTING ACTIVITIES
Inflows Outflows
Sales of long lived assets such as property, plant and equipment, Acquisitions of long term assets such as property, plant and
intangibles and other long-term assets equipment, intangibles and other long term assets
Sales of debt and equity securities of other entities Purchases of debt and equity securities of other entities
Collection of loans (principal) to others (other than advances and Loans (principal) to others (other than advances and loans made by
loans made by financial institution) financial institution)
FINANCING ACTIVITIES
Inflows Outflows
Proceeds from borrowing (short-term and long-term) Repayment of debt principal
Proceeds from issuing the firm’s own equity securities Repurchase of a firm’s own shares
Payment of dividends
Acquisition of the enterprise’s own shares

The Direct Method

Under the direct method, operating cash outflows are deducted from operating cash inflows to determine the net cash flow from operating activities.
If you choose the direct method, a reconciliation of cash provided by operations to net income is a required disclosure.
This is the same schedule that appears in a statement prepared using the indirect method
The required information items on a direct method statement of cash flow (per FASB)
Operating Inflows Operating outflows
Cash collected from customers (including lessees, tenants, licensees, and Cash paid to employees and other suppliers of goods or services
the like) (including insurance, advertising and the like)
Interest and dividends received Interest paid
Other operating cash receipts, if any Income taxes paid
Other operating cash payments, if any

The Indirect Method

Under the indirect method, net income is adjusted for noncash items related to operations to compute the net cash flow from operating activities.
If you choose to use the indirect method, you must also disclose interest paid and income taxes paid during the year.

Other disclosures
Under both methods (direct & indirect), you must disclose noncash financing and investing activities
This can be on face of the statement or in the notes to the financial statements.
Examples:
Trade common stock for land, convertible bonds converted to common stock

Noncash Items
Some financing and investing activities do not affect an entity’s cash flow.
Examples:
Trade common stock for land
Issue bonds in exchange for a building
Convertible bonds converted to common stock

Significant transactions should be disclosed separately.

The disclosure of significant noncash financing and investing activities are required under both methods (direct & indirect)
The disclosure can be on face of the statement or in the notes to the financial statements.
 2012 2011 Additional information about 2012 transactions and
events:
Cash $ 30,000 $ 50,000
Accounts Receivable, net 410,000 460,000
Net income was $110,000.
Inventory 300,000 320,000
Prepaid Expenses 20,000 15,000
Depreciation expense on buildings and equipment was
Long-Term Investments 50,000 25,000 $60,000.
Land 560,000 300,000
Buildings and Equipment 2,000,000 1,900,000 Sold equipment with a cost of $50,000 and accumulated
Accumulated Depreciation (800,000) (770,000) depreciation of $30,000 for cash of $17,000.
$ 2,570,000 $ 2,300,000
Declared and paid cash dividends of $60,000.

Accounts Payable $ 300,000 $ 120,000

Issued a $150,000 long-term note payable for buildings and
Accrued Liabilities 40,000 50,000 equipment.
Bonds Payable 500,000 800,000
Long-Term Note Payable 150,000 0 Purchased long-term investments for $25,000.
Common Stock, $2 par value 200,000 160,000
Paid-in Capital in Excess of Par Value 710,000 550,000 Paid $300,000 on the bonds payable.
Retained Earnings 670,000 620,000
$ 2,570,000 $ 2,300,000 Issued 20,000 shares of $2 par value common stock for
Cash Flows from Operating Activities: $200,000.
Net Income $110,000
Purchased land for $260,000.
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation Expense 60,000
Loss on Sale of Equipment 3,000
Decrease in Accounts Receivable 50,000
Decrease in Inventory 20,000
Increase in Prepaid Expenses (5,000)
Increase in Accounts Payable 180,000
Decrease in Accrued Liabilities (10,000)

Net Cash Provided by Operating Activities $408,000

Cash Flows from Investing Activities:

Sale of Equipment $17,000
Purchase of Long-Term Investments (25,000)
Purchase of Land (260,000)

Net Cash Used by Investing Activities (268,000)

Cash Flows from Financing Activities:

Payment of Dividends $(60,000)
Payment of Bonds Payable (300,000)
Issuance of Common Stock 200,000

Net Cash Used by Financing Activities (160,000)

Net Decrease in Cash $(20,000)

Cash at Beginning of Year 50,000

Cash at End of Year $30,000

Noncash Investing & Financing Activities:

Issuance of Notes Payable for Building & Equipment $150,000