ACG2021 Chapter 14 (Principles of Financial Accounting)

Cash Reciepts and Cash payments of a business

In accounting, cash receipts specifically mean all money the business takes in.

1. Reports on the cash flows of a business—where cash came from (receipts) and how cash was spent (payments).

2. Reports why cash increased or decreased during the period.

3. Covers a span of time and is dated the same as the income statement—“Year Ended December 31, 2025,” for example.

1. Predict the future Cash Flow


2. Investors can evaluate the management of a company to determine to determine if investing in that company is a wise decision


3. Predict ability to pay loans or dividends

-Lenders want to know whether they will collect on their loans

-Stockholders want to know whether they will collect on their dividends.

1. Operating Activities


2. Investing Activities


3. Financing Activities


*In the same order as in the Cash Flow Statment

-Revenue and expenses that comes from day-to-day operations.



PLUS

-Interest expense: expense of borrowing money

-Interest Revenue: Bank Account, Bought another companies bond, gave out a loan

-Dividend Income: The company owns stock in another company and gets money from that companies dividends

-Income Tax Expense

Activities that Increase or Decrease long-term assets

Activities that increase or decrease long-term liabilities and equity



Includes

-Issuing Stocks

-Paying Dividends

-Buying and Selling Treasury Stock



-Paying off Long-term liabilities

-Borrowing Money

1) Borrowing Money (long-term) - Financial Activity

2) Repaying Loan Principal - Financial Activity

3) Paying Interest on that loan - Operating Activity

Operating Cash activities: Current Assets and Current Liabilities


Investing Cash Activities: Long-Term Assets


Financing Cash Flows: Long-term Liabilities and Equity


PS: Chart is a good generalization, BUT NOT PERFECT!

Adjustments:

1. Long term Liabilities

-Operational: When accruing business expenses (So, you just pay later)

-Financing: Borrowing Money or repaying that money

1) non-cash investing and financing activities

2) typically shown ("as a separate schedule" -textbook) at the bottom of the cash flow statement or in the notes to the financial statments.

Step 1: Operating Activities (Either choose the indriect method or the direct method)

*PS: The Direct/Indirect Method only effects Operating Activities. All other sections of the Cash Flow Statement are the same.


Step 2: Investing Activities

Step 3: Financing Activities

Step 4: Net Increase (Decrease) in Cash

Step 5: Create a separate schedule for any "non-cash investing and financing activities"

Both direct and indirect follow GAAP. Indirect i most common.

Your basically trying to get from your

1. Reverse Depreciation, Depletion, and Amortization Expenses

-So, if you have a \$20,000 depreciation expense, then you would have to increase net income by \$20,000



2. Gains or Losses from Non-Operating Activities need to be Reversed



3. Reverse increases or decreases in Current assets & Liabilities

-Increased Current Asset = Decrease Net Income

-Decreased Current Asset = Increased Net Income

-Increased Current Liability = Increased Net Income

-Decreased Current Liability = Decrease Net Income

Free cash Flow is the amount of cash available from operating activities after paying for planned investments in long-term assets and after paying cash dividends to shareholders.

Free Cash Flow = Net Cash provided by operating Activities - Cash Payments for investments in Long-term assets - Cash Dividends

Indirect is most preferred for companies since it requires less computations



However, FASB does prefer Direct.

Steps on how to do the direct Method for operating Activities.

(Next _ of Slides)

If the interest revenue is \$12,000, and there is NO interest receivable, then that means all the interest has been received by cash.

So, the 'Interest Revenue Received' would be \$12,000

If the Dividend revenue (recieved from the companies investmnets in OTHER companies and recieivng a dividend) is \$9,000, and there is NO dividend receiavble, then that means all the revenue has been received by cash.

So, the 'Dividends Received on Investments' would be \$9,000.

Cash payments to suppliers include all payments for:

-Merchandise Inventory

-Operating Expenses (except employee compensation, interest, and income tax)



*Just add the totals of each of the formulas

If the Salaries and Wages Expense is \$56,000, and there is NO Salaries and Wages Payable, then that means all the expenses has been paid by cash.

So, the 'To Employees' would be \$56,000.

If the Interest Expense is \$15,000, and there is NO Interest Payable, then that means all the expenses has been paid by cash.


So, the 'For interest' would be \$15,000.




If the Income Tax Expense is \$14,000, and there is NO Income Tax Payable, then that means all the expenses has been paid by cash.


So, the 'For Income tax' would be \$14,000.

FINANCIAL ACTIVITY!!


(NOT OPERATIONAL!)

Expense incurred but not yet paid

Revenue earned but not yet paid

It would DECREASE net income, since accured liabilities are just expenses you haven't paid yet. So, if it decreased, then that means you paid an expense, with cash.