Accrual Vs Cash Flows Lecture Notes
Accrual Vs Cash Flows Lecture Notes
Accrual Vs Cash Flows Lecture Notes
Fall 2015
Operating activities
Categories of transactions
affecting cash
Investing activities
Financing activities
Operating
Activities
Cash Inflows
Cash Outflows
Sale of goods or
Investing Activities
Cash Inflows
The sale of long-lived assets
used in the business
The sale of investment
securities*
The collection of a nontrade
receivable (excluding the
Cash Outflows
Purchase of long-lived assets
used in the business
Purchase of investment
securities like stocks and bonds
of other entities*
Cash
Cash
Cash
Cash
Note that in each case, an asset or liability holds the timing difference
between net income and cash flows from operations.
0
1,000
1,200
320
0
0
2,680
6) Depreciation expense does not equal cash paid for depreciation. What
are the differences?
The depreciation expense allocates an investing cash flow over several
periods. It does not involve an operating cash flow.
Decreases
Add
Deduct
Deduct
Add
- Rent Expense
- Supplies Expense
Net Income
= operating cash flow + Accounts Receivable - Unearned Revenue
- Accounts Payable + Inventory + Prepaid Rent + Supplies
+ Wages Payable + Interest Payable Depreciation Expense
Net Income
Increase
Revenue
Accounts receivable
Interest revenue
Interest receivable
Merchandise inventory -
Decrease
Collect cash flow, increase
allowance for doubtful accounts
Supplies inventory
Decrease
Cash
Expense
Cash
Expense
Cash, payable
Asset
Cash
Wage expense
Cash
Interst expense
Cash
Cash
revenue
Prepaid insurance
Prepaid rent
Property, Plant & Equip
Accounts payable
Wages payable
Interest payable
Unearned revenue
Therefore, if you know the change in a balance sheet account from the
beginning of a period to the end of a period (the net increase or decrease in
the account), AND you know one reason for the change you can infer the other
reason for the change.
Practice Problem
Following is selected balance sheet information from Sarlaacs Plant Food, Inc. for the
years ended December 31, 2014 and 2015.
Account
12/31/14 12/31/15 Accounts Receivable
8,500
9,000
Merchandise Inventory
10,100
9,600
Prepaid Rent
2,400
2,000
Accounts Payable
8,900
7,900
Wages Payable
1,900
2,000
In addition, the following information for the year ended 12/31/15 is provided to you:
Accrual sales
Cash paid to suppliers for inventory purchased on account
Rent Expense
Cash paid for wages
$24,500
13,700
3,400
4,700
Practice Problem
Using this information, compute the following (NOTE: Assume that accounts payable
relates entirely to merchandise inventory):
a) Cash collected from customers
$________________
$________________
$________________
d) Wage expense
$________________
Indirect Method
Decreases
Deduct
Add
Add
Deduct
2014
$ 170,100
2013
$ 150,750
103,500
126,000
234,000
238,500
45,000
10,800
319,500
198,000
195,000
27,000
12,000
1,500,000
1,500,000
Compute the net cash flow provided by (used in) operating activities during
2014 for the Hoth Snowmobile Company.
Intentionally Blank
foster.washington.edu