Determine net cash flows from

23-27 6. Identify sources of information for a statement of cash flows.

7. Contrast the direct and indirect

methods of calculating net cash flow from operating activities. 8. Discuss special problems in preparing a statement of cash flows.

9. Explain the use of a worksheet in

preparing a statement of cash flows. After studying this chapter, you should be able to: Statement of Cash Flows LEARNING OBJECTIVES 1. Describe the purpose of the statement of cash flows. 2. Identify the major classifications of cash flows.

3. Prepare a statement of cash flows.

4. Differentiate between net income and net cash flow from operating activities.

5. Determine net cash flows from

investing and financing activities. 23-28 ILLUSTRATION 23-3 ILLUSTRATION 23-8 TAX CONSULTANTS INC. Statement Of Cash Flows For The Year Ended December 31, 2015 Increase Decrease In Cash 23-29 ILLUSTRATION 23-3 ILLUSTRATION 23-8 TAX CONSULTANTS INC. Statement Of Cash Flows For The Year Ended December 31, 2015 Increase Decrease In Cash 23-30 ILLUSTRATION 23-3 ILLUSTRATION 23-8 TAX CONSULTANTS INC. Statement Of Cash Flows For The Year Ended December 31, 2015 Increase Decrease In Cash 23-31 ILLUSTRATION 23-3 ILLUSTRATION 23-8 TAX CONSULTANTS INC. Statement Of Cash Flows For The Year Ended December 31, 2015 Increase Decrease In Cash 23-32 ILLUSTRATION 23-8 23-33 LO 5 23-34 LO 5 ILLUSTRATION 23-10 Income Statement, Tax Consultants Inc., Year 2 23-35 LO 5 ILLUSTRATION 23-9 23-36 —Indirect Method LO 5 ILLUSTRATION 23-9 Accounts receivable decreased during the period because cash receipts cash-basis revenues are higher than revenues reported on an accrual basis. 23-37 —Indirect Method LO 5 To convert net income to net cash flow from operating activities, the decrease of 10,000 in accounts receivable must be added to net income. ILLUSTRATION 23-11 Computation of Net Cash Flow from Operating Activities, Year 2 —Indirect Method 23-38 —Indirect Method LO 5 ILLUSTRATION 23-9 When prepaid expenses assets increase during a period, expenses on an accrual-basis income statement are lower than they are on a cash-basis income statement. 23-39 —Indirect Method LO 5 To convert net income to net cash flow from operating activities, the increase of 6,000 must be deduct from net income. ILLUSTRATION 23-11 Computation of Net Cash Flow from Operating Activities, Year 2 —Indirect Method 23-40 —Indirect Method LO 5 ILLUSTRATION 23-9 When accounts payable increase, the company incurred a greater amount of expense than the amount of cash it disbursed. 23-41 —Indirect Method LO 5 Tax Consultants must add the 2016 increase of 35,000 in accounts payable to net income, to convert to net cash flow from operating activities. ILLUSTRATION 23-11 Computation of Net Cash Flow from Operating Activities, Year 2 —Indirect Method 23-42 —Indirect Method LO 5 ILLUSTRATION 23-9 Depreciation expense of 21,000 also represented by the increase in accumulated depreciation is a non-cash charge. ILLUSTRATION 23-10 23-43 —Indirect Method LO 5 Tax Consultants adds depreciation expense back to net income, to arrive at net cash flow from operating activities. ILLUSTRATION 23-11 Computation of Net Cash Flow from Operating Activities, Year 2 —Indirect Method 23-44 LO 5 ILLUSTRATION 23-9 The company purchased land of 70,000 during the period. 23-45 LO 5 The purchase of land for cash is an investing activity, reported as a use of cash. ILLUSTRATION 23-12 Statement of Cash Flows, Tax Consultants Inc., Year 2 23-46 LO 5 ILLUSTRATION 23-9 Tax Consultants acquired an office building using 200,000 cash. 23-47 LO 5 The purchase of a building for cash is an investing activity, reported as a use of cash. ILLUSTRATION 23-12 Statement of Cash Flows, Tax Consultants Inc., Year 2 23-48 LO 5 ILLUSTRATION 23-9 Tax Consultants acquired equipment using 68,000 cash. 23-49 LO 5 The purchase of equipment for cash is an investing activity, reported as a use of cash. ILLUSTRATION 23-12 Statement of Cash Flows, Tax Consultants Inc., Year 2 23-50 LO 5 ILLUSTRATION 23-9 Tax Consultants acquired received 150,000 from the issuance of bonds. 23-51 LO 5 The cash received from the issuance of these bonds represents an inflow of cash from a financing activity. ILLUSTRATION 23-12 Statement of Cash Flows, Tax Consultants Inc., Year 2 23-52 LO 5 ILLUSTRATION 23-9 Two factors explain the increase in retained earnings: 1 net income of 134,000 increased retained earnings, and 2 dividends of 18,000 decreased retained earnings. 23-53 LO 5 Payment of the dividends is a financing activity that involves a cash outflow. ILLUSTRATION 23-12 Statement of Cash Flows, Tax Consultants Inc., Year 2 23-54 ILLUSTRATION 23-12 LO 5 23-55 6. Identify sources of information for a statement of cash flows.

7. Contrast the direct and indirect

methods of calculating net cash flow from operating activities. 8. Discuss special problems in preparing a statement of cash flows.

9. Explain the use of a worksheet in

preparing a statement of cash flows. After studying this chapter, you should be able to: Statement of Cash Flows LEARNING OBJECTIVES 1. Describe the purpose of the statement of cash flows. 2. Identify the major classifications of cash flows.

3. Prepare a statement of cash flows.

4. Differentiate between net income and net cash flow from operating activities.

5. Determine net cash flows from

investing and financing activities. 23-56 1. Comparative statements of financial position. 2. An analysis of the Retained Earnings account. 3. Write- downs, amortization charges, and similar book entries, such as depreciation, because they have no effect on cash. LO 6 23-57 LO 6 ILLUSTRATION 23-17 Adjustments Needed to Determine Net Cash Flow from Operating Activities —Indirect Method 23-58 6. Identify sources of information for a statement of cash flows.

7. Contrast the direct and indirect