财务基础知识3

1、Financial Statement PreparationLearning Objectives : Understand the closing process and develop an ability to prepare a statement of cash flows from a comparative balance sheet and income statement.Discussion Section # 3Financial Reporting - E202Lopo Martinez 1 An adjusting entry is recorded to brin

2、g an asset or liability account balance to its proper amount.Transactions where cash is paid orreceived before a related expenseor revenue is recognized.Adjusting Accounts at the end of the Accounting PeriodTransactions where cash is paid orreceived after a related expenseor revenue is recognized.2C

3、OGS : Cost of Goods SoldBeginning InventoryMerchandise PurchasesorCost of GoodsManufacturedGoodsAvailable for Sale=+Needs to be allocated between:Ending InventoryCost of Goods Sold+-=BeginInventory(known)Purchases(known)Ending Inv(known)COGS.(solved for)So you can estimate COGS:3 The Closing Process

4、Assets, Liabilities and OE are permanent accounts not closed to a zero balance at the end of the accounting period. These accounts are carried forward to the next period.Revenues and Expenses are temporary accounts that are closed to a zero balance at the end of each accounting period.Closing entrie

5、s reduce all temporary accounts to a zero balance.4Revenues Bal. xxx Retained Earnings Beg. Bal. xxx RevenuesThe Closing Process Single EntryxxxExpensesBal. xxxxxxExpensesEnd. Bal. xxxRetained Earnings is a OE account and always carries a balance.Net Income for the period is determined by these two

6、entries.5Revenues Bal. xxx Income Summary RevenuesThe Closing Process Using Income SummaryxxxExpensesBal. xxxxxxExpenses Beg. Bal. xxx xxx Bal. xxxEnd. Bal. xxxNet Income Retained Earnings (1)(1)(2)6How did the business fund its operations?Did the business borrow any funds or repay any loans?Does th

7、e business have sufficient cash to pay its debts as they mature?Did the business make any dividend payments? Importance of Cash Flows StatementCurrencyShort-term, highly liquid investments.Readily convertible into cash.So near maturity that market value is unaffected by interest rate changes. Cash o

8、r Cash Equivalents7Components of the Statement of Cash FlowsCash received fromsale of goodsand servicesCash paid foroperating goodsand servicescash flowfrom operationsOperations-=Cash received fromsales of investmentsand PP&ECash paid for ac-quisition of invest-ments and PP&Ecash flowfrom investingI

9、nvesting-=Cash received fromissue of debt orcapital stockCash paid for dividends and reacquisition of debt or capital stockcash flowfrom financingFinancing-=Net change in cashfor the period=+ -+ -8D Cash = D Liabilities + D OE - D Noncash AssetsThe changes in cash can be determined by analyzing the

10、noncash accounts on the balance sheet.Analyzing Noncash AccountsD Cash + D Noncash Assets = D Liabilities + D OEAny change (D) in a noncash item (liability, OE or asset) must be accompanied by a change in cash.Assets = Liabilities + Owners EquityCash + Noncash Assets = Liabilities + Owners Equity9In

11、vesting ActivitiesCash Flow from Investing Transactions that involve acquisition or disposal of non-current assets10Financing ActivitiesCash Flow from FinancingTransactions involving receipts from or payments to creditors and shareholders11Operation ActivitiesCash Flow from Operations Cash payments

12、for operationsCash receipts from operationsNet incomeAdjustments for non-cash revenues and expensesAdjustments for receivables, inventories, payables, other current assets/liabilitiesCash flow from operationsLessPlus/LessPlus/LessEqualsEqualsDirect MethodIndirect Method12Indirect MethodReconciles ac

13、crual net income with cash flows from operationsAdjustments to net income include:Amortization expenseGains and lossesChanges in current assetsChanges in current liabilities13MEASURING CASH ADEQUACYFREE CASH FLOWFree cash flow is the amount of cash available from operations after paying for planned

14、investments in plant, equipment, and other long-term assets (no finance activities).Free Cash FlowCash Flow from OperationsCash Flow from Investing Activities=+Free Cash Flow=+DepreciationD Noncash WK Net Income-Net Capital Expenditures Under simplifying assumptions :14D Cash = D Liabilities + D OE - D Noncash AssetsP- 4.26 a) 15P- 4.26 b) Indirect Method 16P- 4.26 b) 17During the current year a firm sold fo