war22ech16statement cash flows indonesia

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Adeng Pustikaningsih, M.Si.

Dosen Jurusan Pendidikan Akuntansi

Fakultas Ekonomi

Universitas Negeri Yogyakarta

CP: 08 222 180 1695

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Statement of

Cash Flows

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1.

Summarize the types of cash flow

activities reported in the statement of

cash flows.

2.

Prepare a statement of cash flows,

using the indirect method.

3.

Prepare a statement of cash flows,

using the direct method.

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Summarize the types of

cash flow activities

reported in the

statement of cash flows.

Objective 1

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16-1

The

statement of cash flows

reports a

firm’s major cash inflows and outflows

for a period. It provides useful

information about a firm’s ability to

generate cash from operations,

maintain and expand its operating

capacity, meet its financial obligations,

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Reporting Cash Flows

16-1

The statement of cash flows reports cash flows

from three types of activities:

1.

Cash flows from operating activities

are cash

flows from transactions that affect net income.

2

.

Cash flows from investing activities

are cash

flows from transactions that affect the investments

in noncurrent assets.

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16-1

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(payments for treasury stock, dividends,

and redemption of debt securities)

Financing

(payments for expenses)

Operating

Sources (increases) of Cash Uses (decreases) of Cash

(receipts from sales of noncurrent assets)

Investing

(receipts from issuing equity and debt

securities) Financing (payments for acquiring noncurrent assets) Investing (receipts from revenues) Operating

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Cash Flows from Operating Activities

16-1

The

direct method

reports the

sources of operating cash and

the uses of operating cash.

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16-1

The

indirect method

reports the operating cash

flows by beginning with net income and

adjusting it for revenues and expenses that do

not involve the receipt or payment of cash.

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16-1



Cash

inflows

from operating activities

normally arise when cash is received

from customers.



Cash

outflows

from operating activities

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16-1

A

primary advantage

of the direct

method is that it reports the sources

and uses of operating cash flows in

the statement of cash flow.

A primary disadvantage of the direct

method is that the necessary data

may not be readily available and may

(13)

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16-1

A

primary advantage

of the indirect

method is that it focuses on the

differences between net income and

cash flows from operations.

Because the data are readily available,

another advantage

of the indirect

method is that it is normally less costly

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Cash Flows from Operations:

Direct and Indirect Methods

—

NetSolutions

16-1

same amount

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Cash Flows from Investing Activities

16-1



Cash

inflows

from investing activities

normally arise from selling fixed assets,

investments, and intangible assets.



Cash

outflows

from investing activities

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Cash Flows from Financing Activities

16-1



Cash

inflows

from financing activities

normally arise from issuing debt or equity

securities.



Cash

outflows

from financing activities

normally include paying cash dividends,

repaying debt, and acquiring treasury

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Noncash Investing and Financing

Activities

16-1

Noncash investing and financing

activities

are transactions that do not

involve cash. The effect of such

transactions is recorded in a separate

schedule that appears at the bottom of

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16-1

I M P O R T A N T

The financial statements,

including the statement of

cash flows, should not report

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Example Exercise 16-1

For each of the following, identify whether it would

be disclosed as an operating, financing, or investing

activity on the statement of cash flows under the

indirect method.

a. Purchase patent

b. Pay cash dividend

c. Disposal of

equipment

d. Net income

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For Practice: PE 16-1A, PE 16-1B

Follow My Example 16-1

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a. Investing

b. Financing

c. Investing

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Prepare a statement of

cash flows, using the

indirect method.

Objective 2

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16-2

An efficient approach to preparing the

statement of cash flows is to analyze the

changes in the noncash balance sheet

accounts. The logic of this approach is that a

change in any balance sheet account

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The analysis of

Retained Earnings

provides a good starting point for

determining the cash flows from

operating activities, which is the first

section of the statement of cash flows.

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16-2

Comparative Balance Sheet

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16-2

Comparative Balance Sheet

(Concluded)

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16-2

Retained Earnings

The

Retained Earnings

account for Rundell Inc. reveals

that the balance increased Rp80,000,000 during the year.

ACCOUNT

Retained Earnings

ACCOUNT NO.

32

Balance

Date Item Debit Credit Debit Credit

2008

Jan. 1 Balance

202,300,000

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16-2

ACCOUNT

Retained Earnings

ACCOUNT NO.

32

Balance

2008

Jan. 1 Balance

202,300,000

Dec. 31 Net income

108,000,000

310,300,000

31 Cash dividends

28,000,000

282,300,000

The net income of Rp108,000,000 is entered on the

statement (or working papers).

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Operating Activities

—

Rundell Inc.

Cash flows from operating activities:

Net income

Rp108,000,000

Adjustments to reconcile net income

to net cash flow from operating activities:

This phrase is added to indicate

that accrual basis net income is

being adjusted to arrive at cash

flows from operations.

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Next, we need to determine

depreciation expense for the year. If it

isn’t given in the income statement,

sometimes it can be found by

analyzing the various accumulated

depreciation accounts.

16-2

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16-2

ACCOUNT

Accumulated Depreciation

—

Building A

CCT.NO.

Balance

2008

Jan. 1 Balance

58,300,000

Dec. 31 Depr. for year

7,000,000

65,300,000

to statement

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The offsetting Rp7,000,000 debit is

to an expense for depreciation. The

effect on the income statement was

to reduced net income; however,

this expense did not require an

outflow of cash. Therefore, the

Rp7,000,000 is added back to net

income in determining cash flows

from operating activities.

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Amortization is treated in

the same manner as

depreciation.

16-2

Net income

Rp108,000,000

Adjustments to reconcile net income

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16-2

Gain on Sale of Land

The ledger or income statement of Rundell

Inc. indicates that the sale of land resulted

in a gain of Rp12,000,000. This gain

increased net income by Rp12,000,000, yet

cash flows was provided by an investing

activity (selling land) rather than an

operating activity, so the gain is deducted

from net income on the statement of cash

(34)

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16-2

Operating Activities

—

Rundell Inc.

Net income

Rp108,000,000

to net cash flow from operating activities:

Depreciation

Rp7,000,000

Gain on sale of land

(12,000,000)

(35)

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34

PT Oktora’s accumulated depreciation increased by

Rp12,000,000, while patents decreased by

Rp3,400,000 between balance sheet dates. There

were no purchases or sales of depreciable or

intangible assets during the year. In addition, the

income statement showed a gain of Rp4,100,000

from sale of land. Reconcile a net income of

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Net income

Rp50,000,000

from operating activities:

Depreciation

12,000,000

Amortization

3,400,000

(4,100,000)

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Next, select

current assets

and

current liabilities

that impact cash

flows and determine their increases

and decreases. Exhibit 5 in the next

slide my prove to be helpful in

determining how to treat increases

and decreases in noncash current

operating assets and current

operating liabilities.

16-2

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16-2

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Changes in Current Accounts (in ‘000 Rp)

Accounts

Accounts receivable (net)

Rp 74,000 Rp 65,000

Inventories

172,000

180,000

Accounts payable (mdse.)

43,500

46,700

Accrued expenses payable

26,500

24,300

Income taxes payable

7,900

8,400

9,000

8,000*

3,200*

2,200

500*

2008

2007

December 31

Increase

Decrease*

16-2

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Cash flows from operating activities:

Net income

Rp108,000,000

Depreciation

7,000,000

(12,000,000)

Changes in current operating assets

and liabilities:

Increase in accounts receivable

(9,000,000)

Decrease in inventory

8,000,000

Decrease in accounts payable

(3,200,000)

Increase in accrued expenses

2,200,000

Decrease in income taxes payable

(500,000)

16-2

Operating Activities

—

Indirect Method

39

You will notice that increases actually decrease cash flows from

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16-2

Statement of Cash Flows

—

Indirect Method for Rundell Inc.

(Operating Activities Section)

16-2

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Example Exercise 16-3

Victor Corporation’s comparative balance sheet for

current assets and current liabilities was as follows:

Dec. 31, 2009 Dec. 31, 2008

Accounts receivable

Rp 6,500,000 Rp 4,900,000

Inventory

12,300,000 15,000,000

Accounts payable

4,800,000 5,200,000

Dividends payable

5,000,000 4,000,000

(43)

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Net income

Rp70,000,000

Adjustments to reconcile net income to net

cash from from operating activities:

(1,600,000)

Decrease in inventory

2,700,000

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Omicron, Inc. reported the following data:

Prepare the cash flow for operating activities

section of the statement of cash flows using the

indirect method.

Net income

Rp120,000,000

Depreciation expense

12,000,000

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Net income

Rp120,000,000

Depreciation

12,000,000

Loss from disposal of equipment

15,000,000

Changes in current operating assets

and liabilities:

(5,000,000)

Decrease in accounts payable

(2,000,000)

Net cash flow from operating activities Rp140,000,000

(46)

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16-2

Cash Flows Used for Payment of

Dividends

ACCOUNT

Dividends Payable

ACCOUNT NO.

Balance

2008

Jan. 1 Balance

10,000,000

10 Cash paid 10,000,000

—

June 20 Dividends declared

14,000,000

July 10 Cash paid

14,000,000

—

Dec. 20 Dividends declared

14,000,000

Note that while Rp28,000,000 in dividends were

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Because paying of dividends

affects equity and is an

outflow of cash, it is a

negative Rp24,000,000

cash

flows

from

financing

activities

transaction.

(48)

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16-2

Common Stock

increased by Rp8,000,000.

ACCOUNT

Common Stock

ACCOUNT NO.

Balance

2008

Jan. 1 Balance

16,000,000

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16-2

ACCOUNT

Paid-in Capital in Excess of Par

—

Common Stock

Balance

2008

Jan. 1 Balance

80,000,000

Nov. 1 4,000 shares issued/cash

40,000

120,000,000

(50)

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Issuing common stock affects

equity; therefore, we have a

positive Rp48,000,000

cash flows

from financing

activities

item.

(51)

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50

16-2

Bonds Payable

decreased by Rp50,000,000.

ACCOUNT

Bonds Payable

ACCOUNT NO.

Balance

2008

Jan. 1 Balance

150,000,000

June 30 Retired by payment of

cash at face amount 50,000,000

100,000,000

(52)

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Retiring bonds is a cash outflow

reported as a negative item

under

cash flows from

financing

activities

.

(53)

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16-2

Building

ACCOUNT

Building

ACCOUNT NO.

Balance

2008

Jan. 1 Balance

200,000,000

Dec. 27 Purchased for cash

60,000,000

260,000,000

(54)

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Purchasing a building involves a

noncurrent asset, so this is a

negative

cash flows from

investing activity

.

(55)

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16-2

Land

ACCOUNT

Land

ACCOUNT NO.

Balance

2008

Jan. 1 Balance

125,000,000

June 8 Sold for Rp72,000,000 cash

60,000,000 65,000,000

Oct. 12 Purchased for Rp15,000,000

cash

15,000,000

80,000,000

The Rp45,000,000 decline in the

Land

account resulted

from two separate transactions: a sale and a purchase.

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The first transaction, the sale of

land, is classified as a positive

cash flows from investing activity

because land is a noncash asset.

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The Rp12,000,000 gain was

recorded earlier on Slide 34

as an operating activity. The

purchase of land also is an

investing

activity.

Click the button to view

Slide 34. To return to

this slide, type “56” and

press the “Enter” key.

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16-2

The second transaction is the

purchase of land for cash of

Rp15,000,000. This

transaction is reported as an

outflow of cash in the

cash

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—

Indirect Method for Rundell Inc.

(Partial Statement)

16-2

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—

Indirect Method for Rundell Inc.

(Partial Statement)

16-2

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Alpha Corporation purchased land for

Rp125,000,000. Later in the year the company

sold land with a book value of Rp165,000,000

for Rp200,000,000. How are the effects of

these transactions are reported on the statement

of cash flows?

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The gain on sale of land is deducted

from net income as shown below:

Rp(35,000,000)

Cash received for sale of land Rp200,000,000

Cash paid for purchase of land (125,000,000)

The purchase and sale of land is

(63)

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Prepare a statement of

cash flows, using the

direct method.

Objective 3

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The final amount for cash

flows from operating

activities will be the same

whether the direct or

indirect approach is used.

The methods

differ

in

how the data are obtained,

analyzed, and reported.

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Exhibit 8 Data for Direct Method

16-3

PT Rudy Pelangi

Schedule of Changes in Current Accounts (in ‘000 Rp)

December 31

Accounts 2008 2007 Decrease* Increase

Cash Rp 97,500 Rp 26,000 Rp 71,500

Accounts receivable (net) 74,000 65,000 9,000

Inventories 172,000 180,000 8,000*

Accounts payable (merchandise

creditors) 43,500 46,700 3,200*

Accrued expenses payable (operating

expenses) 26,500 24,300 2,200

Income taxes payable 7,900 8,400 500*

Dividends payable 14,000 10,000 4,000

(66)

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16-3

Sales Rp1,180,000

Cost of merchandise sold 790,000

Gross profit Rp 390,000

Operating expenses:

Depreciation expense Rp 7,000

Other operating expenses 196,000

Total operating expenses 203,000

Income from operations Rp 187,000

Other income:

Gain on sale of land Rp 12,000

Other expense:

Interest expense 8,000 4,000

Income before income tax Rp 191,000

Income tax 83,000

Net income Rp 108,000

PT Rudy Pelangi Income Statement

For the Year Ended December 31, 2008 (in ‘000 Rp)

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Cash Received from Customers

16-3

The Rp1,180,000,000 of sales

for Rundell Inc. is reported

using the

accrual method

. An

adjustment is necessary to

convert the sales reported on

the income statement to the

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16-3

Sales Rp1,180,000

Other income:

Other expense:

Income tax 83,000

Net income Rp 108,000

Changes

Cash received

from customers

Sales

Rp1,180,000

Cash received

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16-3

Sales Rp1,180,000

Other income:

Other expense:

Income tax 83,000

Net income Rp 108,000

Changes

Cash received

from customers

Sales

Rp1,180,000

Increase in accounts rec. (9,000)

Cash received

from customers

Rp1,171,000

CASH

BASIS

(70)

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Sales reported on the income statement were

Rp350,000,000. The accounts receivable

balance declined Rp8,000,000 over the year.

Determine the amount of cash received from

customers.

Sales

Rp350,000,000

Add decrease in accounts receivable 8,000,000

Cash received from customer Rp358,000,000

(71)

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Cash Payments for Merchandise

16-3

Sales Rp1,180,000

Other income:

Other expense:

Income tax 83,000

Net income Rp 108,000

CASH

BASIS

Rp1,171,000

Cash payments for

merchandise

Changes

(72)

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16-3

Sales Rp1,180,000

Other income:

Other expense:

Income tax 83,000

Net income Rp 108,000

CASH

BASIS

Rp1,171,000

Cost of merchandise sold

Changes

Cash payments for

merchandise

Decrease in inventories

(8,000)

Decrease in accounts payable 3,200

Cash payments for

merchandise

Rp785,200

(73)

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16-3

Sales Rp1,180,000

Other income:

Other expense:

Income tax 83,000

Net income Rp 108,000

CASH

BASIS

Rp1,171,000 (785,200)

Changes

Cash payments for

merchandise

Decrease in inventories

(8,000)

Decrease in accounts payable 3,200

Cash payments for

merchandise

Rp785,200

(74)

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Cost of merchandise sold reported on the income

statement was Rp145,000,000. The accounts payable

balance increased Rp4,000,000, and the inventory

balance increased by Rp9,000,000 over the year.

Determine the amount of cash paid for merchandise.

Rp145,000,000

Add increase in inventories

9,000,000

Deduct increase in accounts payable

(4,000,000)

Cash payments for merchandise

Rp150,000,000

(75)

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Cash Payments for Operating Expenses

16-3

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Sales Rp1,180,000

Other income:

Other expense:

Income tax 83,000

Net income Rp 108,000

CASH

BASIS

(76)

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16-3

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Sales Rp1,180,000

Other income:

Other expense:

Income tax 83,000

Net income Rp 108,000

CASH

BASIS

Rp1,171,000 (785,200)

0

(77)

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16-3

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Sales Rp1,180,000

Other income:

Other expense:

Income tax 83,000

Net income Rp 108,000

CASH

BASIS

Rp1,171,000 (785,200) 0

Changes

Operating expenses (other than

depreciation)

Changes

Cash payments for

operating expenses

(193,800)

Rp196,000

Increase in accrued expenses

(2,200)

Cash payments for operating

(78)

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16-3

Sales Rp1,180,000

Other income:

Other expense:

Income tax 83,000

Net income Rp 108,000

PT Rudy Pelangi. Income Statement

CASH

BASIS

Rp1,171,000 (785,200) 0 (193,800) 0

77

To avoid confusion, page numbers for the remaining slides

are centered on the slides.

The gain on sale of land of

Rp12,000,000 is included in the

proceeds from the sale of land, which

(79)

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16-3

Sales Rp1,180,000

Other income:

Other expense:

Income tax 83,000

Net income Rp 108,000

CASH

BASIS

Rp1,171,000 (785,200) 0 (193,800) 0

Interest expense

Changes

Cash paid for

interest expense

8,000

+/- decrease/increase in

payable

0

Cash payments for interest

$8,000

(8,000)

(80)

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16-3

Sales Rp1,180,000

Other income:

Other expense:

Income tax 83,000

Net income Rp 108,000

CASH

BASIS

Rp1,171,000 (785,200) 0 (193,800) 0

Cash Payments for Income Taxes

(8,000)

Income tax expense

Changes

Cash payments

for income taxes

Rp83,000

Add decrease in income

taxes payable

500

Cash payments for income tax Rp83,500

(81)

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16-3

Sales Rp1,180,000

Other income:

Other expense:

Income tax 83,000

Net income Rp 108,000

CASH

BASIS

Rp1,171,000 (785,200) 0 (193,800) 0

Cash Payments for Income Taxes

(8,000)

(82)

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16-3

—

Direct Method (Operating

Activities Section)

(83)

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82

16-3

—

Direct Method (Reconciliation)

(84)

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16-3

Financial Analysis and Interpretation

Free cash flow

is a measure of

operating cash flow available for

corporate purposes after providing

sufficient fixed asset additions to

maintain current productive

(85)

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Cash flow from operations

Less: Investments in fixed assets to

maintain current production

Free cash flow

16-3

Free Cash Flow

Positive free cash flow is considered favorable.

A company that has free cash flow is able to