Grania Company Cash Flow Statement

In: Business and Management

Submitted By nickit2000
Words 282
Pages 2
Question P12-5
Statement of Cash Flow-Indirect Method
For the year ended December 31, 2007 $ $ Cash flows from operating expenses | | | | net income | | | 230,000 | Adjustments to reconcile net income to Net cash | | | | provided by op activities: | | | | Depreciation expense | 60,000 | | | Loss on sale of equipment | 16,000 | | | Increase in accounts receivable | (15,000) | | | Increase in accounts payable | 13,000 | | | Increase in income taxes payable | 4,000 | | 78,000 | Net cash provided by operating activities | | | 308,000 | | | | | Summary To prepare the statement of cash flows using the indirect method for the operating activities we followed the formula, Net income +/- Adjustments = Net Cash Provided / Used by Operating Activities. The net income in this case was provided as $230,000. This gave us the number we would start with. We then needed to add back noncash expenses, deduct gains and add losses from financing activities and then look at the changes to non-cash current assets. We started by adding in the depreciation expense this was $60,000. We then added back the loss on sale of equipment of $16,000 these were deductions in the income statement. Once we had added these we needed to find the difference between 2006 and 2007 statement of cash flows. The difference between 2006 and 2007 were increases in accounts receivable, accounts payable, and income taxes payable of $15000, $13000, and $4000 respectively. We then took the increase of $15,000 in accounts receivable and…...

Similar Documents

Statement of Cash Flow

...Subject: Statement of Cash Flow CC: Learning Team A The Carpino Company is pleased to announce that the organization has experience an exciting first year. This memo and the attached cash flow statement summarize the important details of Carpino’s statement of cash flows for the period ending January 31, 2007. It will provide the shareholders reasons for the difference between net income and net cash used by operating, investing, and financing activities. The cash flow statements will also determine Carpino’s ability to generate future cash flows, and to pay dividends and meet obligations. Carpino’s cash flow statement shows a net loss because expenses are $30,000 higher than revenues for the end of year. However, depreciation expense of $55,000 must be subtracted from the expenses since it is not an actual cash item expense. The depreciation expense is calculated in the operating activities and result in a positive net income of $20,000. In preparing the cash flow statement, items that do not affect physical cash income must be adjusted into the original net income figure. While GAAP requires us to accrue for items in the current year, the cash flow is only a view of actual cash in and cash out. The end result is a positive aspect for Carpino Company because the company has a sufficient surplus of revenue. The primary reason Carpino has an increase in cash is based on financing activities. During the 2007 year Carpino issued $420,000 of capital stock. Cash flow from......

Words: 479 - Pages: 2

Cash Flow Statement

...Statement of cash flows Statement of cash flows helps users in at least 4 ways. • It can help users predict whether a firm will have positive future net cash flows • It can help users determine a firm’s need for external financing and its ability to pay debts and dividends. It gives users information about current cash flow, possible future cash needs, and borrowed cash that must be repaid in the future • The statement also helps users assess a firm’s overall financial health. The combination OT, INV., FIN cash flows can help a user predict whether a firm will experience growth or whether it is in decline. • The statement focuses the user on cash by reconciling the firm’s accrual net income to the change in the cash balance Operating activities • Activities that a business performs from day to day in its primary profit seeking activity. They generate revenues and result in expenses, and use the company’s current assets and current liabilities. Investing activities • Consist of the long-term assets purchases or sold by a company Financing activities • Include all changes in external financing (e.g. issuing debt, obtaining bank loans, issuing common stock) Direct and Indirect method • Are different ways of preparing the cash flow statement’s operating activities Direct Method • Requires the accountant to compute all operating cash inflows and outflows, and to provide a supplemental schedule that is the cash flows statement indirect method......

Words: 454 - Pages: 2

Cash Flow Statements

...Cash Flow Statements Robert Morgan ACC206 Stacy Hiles August 1, 2014 Cash Flow Statements Please complete the following 5 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button. 1. Critical Thinking Question: Answer the following questions: Why are noncash transactions, such as the exchange of common stock for a building for example, included on a statement of cash flows? How are these noncash transactions disclosed? There are occasions when certain transactions occur without actually generating cash. Examples can include an exchange of stock for real-estate or, conversion of debt to equity or acquisition property by default on a note-payable (i.e. repos and foreclosures). These transactions do not actually generate an inflow or out flow of cash but, they do highlight significant changes to investing and financing activities. When this occurs there are essentially two ways to report it on a cash flow statement. Recommended by the Financial Accounting Standards Board, “For the resulting operating cash receipts and payments to be accurate, the effects of all noncash entries to accounts receivable and payable, inventory, and other balance sheets accounts used in the......

Words: 1035 - Pages: 5

Explanation of Statement of Cash Flows

...College of NJ Explanation of Statement of Cash Flows GAC 515 Professor Frank Longo Sandra Rambert August 7, 2014 Statement of Cash Flows has two main purposes firstly, deliver data about a business’ cash receipts and payments. Secondly, statement of cash flows records changes as a product of operations, investments and financial activities during a period on a cash basis. (Weil, 2014) Information in a statement of cash flows can be useful to investors, creditors and any other interested parties. Individuals or entities reviewing the cash flow statement can determine the optimal time to implement future business strategies, payout dividends and invest money back into the company. Cash flow statement identifies the net income and net cash flows from operating activity. Statement of cash flows is usually prepared using two methods the indirect method and the direct method. “The indirect method also known as reconciliation method starts with net income and converts it to net cash flow from operating activities.” (Explanation, 2011) The indirect method records net income for transactions that relates to net income but not cash. To calculate net cash flow from operating activity charges that are non-cash in the income statement are added back to net income and non –cash credits are deducted from net income. (Weil, 2014) The greatest advantage of the indirect method is it concentrates on the difference between net income and net cash flow from operating......

Words: 1284 - Pages: 6

Cash Flow Statement

...that the aim of cash flow reporting is to explore ways in which the underlying liquidity of a reporting entity can be revealed in accounting terms. Profit is regarded as an indicator of financial success, but, as anyone running a business will tell you, cash is king. The measurement of profit is usually based on a mixture of factual transactions and unavoidable subjective accounting judgments. “The stock market prefers the fantasy of smooth growth to the reality of fluctuating operational performance. It falls to the creative accountant to ensure that those fluctuations are removed by hoarding profits in years of plenty for release in years of famine... Just like sin, cash flow will eventually find a company out.” So wrote Ian Griffiths in his bestseller Creative Accounting . The Financial Analysis paper comes as a bit of a shock to some candidates, especially the area of consolidations. From time to time there is no balance sheet or income statement to prepare, but a group cash flow statement may be required. Sometimes cash Francis Braganza explains how to prepare a cash flow statement, using November 2005’s question as an example, with dates advanced two years. Financial analysis Group adjustments 1 A dividend received from an associate by a parent is an inflow (investing activities: second category). 2 A dividend paid to a minority interest by a subsidiary is an outflow (financing activities: third category). 3 Net cash paid out to......

Words: 647 - Pages: 3

Cash Flow Statements

...Upon studying its statement of cash flows, you note that over the last three years a firm has consistently reported negative cash flow from operating activities, positive cash flow from investing activities, and negative cash flow from financing activities. What does this combination of cash flows suggest to you about the firm? Is there any additional information that you would like to see? If so, what? When a company spends more than it receives, it is said to have a ‘negative’ cash flow. Negative cash flows are often viewed as indicators of financial ill health by investors. However, if this is a startup company, one could expect negatives on all cash flows as it grows customer base. That's why you need to look at income statements, balance sheets and read the annual reports before you can truly ascertain the health of a company. The cash flow from investing activities also indicates a firm’s ability to invest in non-current assets. If the company generates enough cash to invest continually in property, plant and equipment as well as other fixed assets, it is an indication that the firm aims at replacing technologically obsolete equipment to keep up with the latest trends. Increase in fixed assets indicates capital expansion and future growth. Negative cash flow from operations isn’t always bad. Because of the high costs of growing a business, it’s normal for fast-growing companies to spend more cash than they generate. Typically, such companies may rely on bank......

Words: 455 - Pages: 2

Statement of Cash Flow

...1998 Statements of Cash Flows: Three Examples John Stacey, a sales engineer for Aldhus Corporation, was worried. A flight delay had caused him to miss last week’s accounting class in the evening MBA program in which he had enrolled at the suggestion of the personnel director at Aldhus, a growing manufacturer of computer peripherals. The class he had missed had been devoted to a lecture and discussion of the statement of cash flows, and he was sure the material he had missed would be covered in the weekly quiz that was part of each class session. A classmate had faxed Stacey some notes distributed by their instructor, but they were too cryptic to be understood by anyone who had missed the class. In desperation, John called Lucille Barnes, the assistant controller at Aldhus, to ask if she could take a few minutes to point him in the right direction toward understanding the statement of cash flows. She seemed delighted by the request, and they agreed to meet that afternoon. The Meeting At 2:00 P.M. John Stacey went to the office of Lucille Barnes with his notes and questions. After they had exchanged greetings, Lucille handed John three cash flow statements from the annual reports of other high-technology companies (Exhibits 1, 2, and 3). John was worried that Lucille would ask him to explain them, and that she would see how confused he still was about some aspects of accounting; instead, Lucille began explaining. Lucille Barnes (Assistant Controller): The statement of......

Words: 3995 - Pages: 16

Cash Flow Statement

...In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement,[1] is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet.[1] As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7 (IAS 7), is the International Accounting Standard that deals with cash flow statements. People and groups interested in cash flow statements include: * Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses * Potential lenders or creditors, who want a clear picture of a company's ability to repay * Potential investors, who need to judge whether the company is financially sound * Potential employees or contractors, who need to know whether the company will be able to afford compensation * Shareholders of the business. Contents [hide] * 1 Purpose * 2 History & variations * 3 Cash flow activities o 3.1 Operating activities o 3.2......

Words: 2959 - Pages: 12

Statement of Cash Flows

...esACTG3110 Chapter 5: Statement of Cash Flows Introduction Objectives of the SCF •Companies are required to include statement of cash flows (SCF) as part of their F/S. •Historical CF are often used as indicator of amount, timing, and uncertainty of future CF. •The objective of the SCF is to disclose the historical cash flows of the enterprise during the reporting period for both feedback and predictive purposes. Classification and Organization The SCF is classified on the basis of the type of cash flow: •Operating activities are the principal revenue-producing activities of the enterprise and the related expenditures. * Cash inflow from operations is measured as cash received from customers or clients. * Cash outflows are those disbursements for operating activities, such as cash paid for inventories, wages and salaries, income taxes, and rent and other overhead costs. * Operating activities relate to net earnings (rev. + exp.), not comprehensive income. * If the company has recognized specific amounts that are part of other comprehensive income, these transactions or events are not included in operating activities. * Therefore, net earnings is the reference point for operating activities on the SCF. •Investing activities are those activities that relate to long-term assets and investments. * The acquisition and disposal of property, plant, and equipment; intangible assets; other assets; and investments are all included in this......

Words: 1644 - Pages: 7

Statement of Cash Flows

...Statement of Cash Flows It was the fall of 2011 and I was reporting sales close to $10,000 for the month of November, thanks in part, to the holiday rush. On the surface, it was pretty good for a first-year online “micro” business selling custom tableware and home decor, run by one person on a part-time basis. As I was caught up on the selling-to-customers aspect of my business, I neglected to pay attention to the inflows and outflows of cash until it was time to file tax returns the following spring. I learned that the sales revenue generated did not necessarily mean that I had that amount of cash to spend. Had I realized this sooner, I would not have signed a 6 month lease on a laser cutter I found to have trouble paying for in the following months. It was trial by fire and I learned the importance of closely monitoring cash flows. As a small business owner, one can imagine that the importance on cash flow are orders of magnitude greater for businesses where millions or even billions of dollars are on the line. The Statement of Cash Flows allow companies to understand the “why’s” and the “how’s” of the amount of cash at the beginning of the period came to be the amount at the end of the period. The cash flow statement has three main areas. Cash Flows from Investing Activities are those cash flows that are involved in activities that finance the business, such as a purchase or sale of investment in securities. The Cash Flows from Financing Activities are the cash flows...

Words: 975 - Pages: 4

Cash Flow Statements

...STATEMENT OF CASH FLOWS Cash flows are critical to a company’s success because among other things they measure the ability of a business to generate cash internally. Positive cash flows allow a company to meet its obligations with creditors and suppliers, take advantage of investment opportunities, replace assets, negotiate better pricing in purchases, and pay dividends; all these without the need of incurring in external financing. Net cash flow needs to be distinguished from Net Income, which includes accounts receivable, accounts payable and other items for which payment has not been received or made (Accruals). Cash flow is used to assess the quality of a company's income; that is, how liquid it is, which can indicate whether the company is positioned to remain solvent. Net income (Income statement) measures a company’s financial results after business operations and financing activities, and it is crucial for investors as this is the statement that determines if overall a business is profitable or not. But because most companies use the accrual accounting method (which I will not explain on this paper), the income statement may not reflect actual changes in cash position. This is why investors should not rely only on this statement to make decisions as should use it only as one “indicator” of revenues minus costs, but it does not give the whole picture of a company’s financial health. It is important for investors and management to analyze the four main financial......

Words: 1673 - Pages: 7

Understanding the Statement of Cash Flows

...Interpretation of Statement of Cash Flows Cash Flows from Operating Activities Net Income/Loss: Cash flow from operating activities is positively affected by accrual profit and affected negatively by losses. “Add-backs” to Net Income: Depreciation and Amortization: Expenses from depreciation and amortization are added back to net income when calculating operating cash flow. Such expenses are classified as “non-cash items or expenses” because companies do not “cut checks” for these expenses. Depreciation and amortization expenses represent a reduction of asset valuation due to usage or depletion of that asset. If asset acquisitions increase during the period, depreciation expense will increase and thereby decreasing net income. If assets are completely depreciated, the resulting depreciation expense will decrease and thus increase net income. In all, the result on operating cash flow could be a “wash” since the amounts are added back to period-ended income. Deferred Compensation: The deferred compensation account represents accruals and payments for specialized compensation agreements. For example, the future payments and accruals for highly compensated personnel, whose salary and bonus may be based on company performance, are typically captured here. As accruals for future compensation increase cash flow will also increase. Naturally, as payments are made cash flow decreases. Share-based Compensation Expense: Like depreciation, share-based compensation is...

Words: 1918 - Pages: 8

Statement of Cash Flows

...Statement of Cash Flows Paper ”What is the purpose of the statement of cash flows? What information does it provide”(Kieso, Weygandt, & Warfield, p. 1253)? Companies provide four statements to abide by the Generally Accepted Accounting Principles (GAAP). These financial statements are the income statement, equity statement, the balance statement, and the statement of cash flows. Each statement provides different types of information necessary to make a knowledgeable decision about a investing in company. The statement of cash flows is useful because it ” provides information on a cash basis about an organization operating, investing, and financing activities” (Kieso, Weygandt, & Warfield, p. 1213). Each of these methods is important to users and provides different information. It also provides information on the inflow and outflow of cash during an accounting period. The statement of cash flows presents this information in either the indirect method or the direct method. The statement of cash flows uses is to provide information about its ability to generate cash in the future. This information may come from three sources the income statement, the balance sheet, and select cash transaction data. The income statement provides the operating activities cash flow. The balance sheet provides the changes in assets, liabilities, and equities. It also shows how the company pays dividends and meets it financial obligations to creditors and investors. Select cash transactions......

Words: 784 - Pages: 4

Statement of Cash Flows

...Statement of Cash Flows Statement of Cash Flows Accounting is the major means of organizing and summarizing information regarding economic activities. The information provided by the accounting practices through financial reporting helps decision makers make appropriate business decisions. The statement of cash flows is one of the three primary financial reports that companies should include in external financial reports to its users according to the generally accepted accounting principles (GAAP). The statement of cash flows provides pertinent information to its users. The Primary Purpose of Cash Flows “The primary purpose of the statement of cash flows is to show the changes in cash of a company from one period to the next” (Kieso, Weygandt & Warfield, 2007, p. 1121). The statement of cash flows focuses on the sources and uses of cash during a period. Another important purpose of the statement of cash flows is to explain the changes in cash and provide information related to the company’s operating, investing and financing activities to provide means for a company to implement strategies in short-term analysis and cash planning of the business for future benefit. Information Provided by Cash Flows “The statement of cash flows provides information to help creditors, investors, and other stakeholders to assess the company’s ability to generate future cash flows, assess the company’s ability to meet obligations and pay dividends, to understand the reasons......

Words: 765 - Pages: 4

Statement of Cash Flows

...CHAPTER 23 Statement of Cash Flows EXERCISE 23-1 E23-1 (Classification of Transactions) Springsteen Co. had the following activity in its most recent year of operations. (a) Pension expense exceeds amount funded. (b) Redemption of bonds payable. (c) Sale of building at book value. (d) Depreciation. (e) Exchange of equipment for furniture. (f) Issuance of ordinary shares. (g) Amortization of intangible assets. (h) Purchase of treasury shares. (i) Issuance of bonds for land. (k) Increase in interest receivable on notes receivable. (j) Payment of dividends. (l) Purchase of equipment. a) Investing activity. b) Financing activity. c) Investing activity. d) Operating—add to net income. e) Significant noncash investing and financing activity. f) Financing activity. g) Operating—add to net income. h) Financing activity. i) Significant noncash investing and financing activity. j) Financing activity. k) Operating—deduct from net income. l) Operating—add to net income. 1. The statement of cash flows is divided into four activities. A. True B. False There are three activities comprising the statement of cash flows. 2. The difference between the direct method and the indirect method centers around the operating activities section of the statement of cash flows. A. True B. False The two methods only differ in the preparation of the operating activities section of the statement. 3. Only the......

Words: 1976 - Pages: 8