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    nervouzpeoples's Avatar
    nervouzpeoples Posts: 15, Reputation: 1
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    #1

    Sep 26, 2007, 06:57 PM
    Cash flow statement
    Why do I need the balance sheet and income statement to create a cash flow statement? and what's the first initial step?:confused:
    nervouzpeoples's Avatar
    nervouzpeoples Posts: 15, Reputation: 1
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    #2

    Sep 26, 2007, 07:44 PM
    Quote Originally Posted by nervouzpeoples
    why do i need the balance sheet and income statement to create a cash flow statement?, and what's the first initial step?:confused:
    Okay,

    If I am doing this correct, I have to categorize these seven items into the three categories, IA, FA, or OA. So, did I do these right and then what?

    a. The loss on the cash sale of equipment is 2,250.
    b. Sold equipment costing 56,875 with accumulated depr. Of 18, 125 for 14,687 cash.
    c. purchased equipment costing 76375 by paying 15,000 cash and signing a long-term note payable for the balance
    d. borrowed 4740 cash by signing a short term note payable
    e. pd. 21,276 cash to reduce the long-term notes payable
    f. issued 1500 shares of common stock for 15 cash per share
    g. declared and pd. Cash dividends of 26,521

    Okay, I put a-c in investing activities and d-g in financial activities. I know that I am doing this from scratch and I don't know why this frightens me so.

    By the way this is supposed to be an indirect cash flows statement
    Erin864's Avatar
    Erin864 Posts: 8, Reputation: 2
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    #3

    Sep 26, 2007, 07:47 PM
    Cash flows from operating activities:
    Cash received from customers
    Deduct cash payments for expenses and payments to creditors
    Net cash flow from operating activities
    Cash flows from operating activities:
    Cash payments for purchase of land
    Cash flows from financing activities:
    Cash received from issuing stock
    Deduct cash dividends
    Net cash flow from financing activities
    Net cash flow, and November 2XXX, cash balance


    Example of how to set it up^^^^^^

    On the balance sheet, your net cash flow and cash balance ( last line on statement of cash flows) is the cash under assets on your balance sheet

    You need the income statement to get the net income to create a statement of retained earnings for the balance sheet

    Start with the last line on the statement of cash flows and work your way up
    nervouzpeoples's Avatar
    nervouzpeoples Posts: 15, Reputation: 1
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    #4

    Sep 26, 2007, 09:23 PM
    Okay, start at the bottom and work my way up. Hummmm, ill try it.

    I already have an income statement and balance sheet. My net income is 73750 and my retained earnings is 129,750. I guess I should know what to do with these figures but I don't.
    bhet's Avatar
    bhet Posts: 77, Reputation: 9
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    #5

    Sep 27, 2007, 12:15 AM
    a. The loss on the cash sale of equipment is 2,250.
    -the loss on sale of eqpt would be added back to the OA cash flow

    b. Sold equipment costing 56,875 with accumulated depr. Of 18, 125 for 14,687 cash.
    -the sales value would be added to IA and if there's a gain it woul be deducted in OA, if loss added to OA

    c. purchased equipment costing 76375 by paying 15,000 cash and signing a long-term note payable for the balance
    -the downpayment would be deducted in IA. The N/p will have no effect on the statement

    d. borrowed 4740 cash by signing a short term note payable
    -this would be an addition in the FA

    e. pd. 21,276 cash to reduce the long-term notes payable
    -deduction from the FA

    f. issued 1500 shares of common stock for 15 cash per share
    -under FA, added

    g. declared and pd. Cash dividends of 26,521
    -FA deduction

    basically if it is transaction that involves the generation of profit or expenses of the company, ot would be under operating activities. (current assets, current liabily)

    if it the cash flow is related to long term investments (i.e PPE, equity securities, etc.) the it would be classified under investing activities.

    and for financing activities, the long term debt and equity account.
    nervouzpeoples's Avatar
    nervouzpeoples Posts: 15, Reputation: 1
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    #6

    Sep 27, 2007, 07:11 AM
    Okay, I am still not getting this and am upset, which is probably why it's not working. Is there a website that will break it down for me step by step?

    This is the actual assignment. Should I be setting up t-accounts or what?



    Kazaam Company, a merchandiser, recently completed its calendar-year 2005 operations. For the year,
    (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers,
    (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash
    payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid
    Expenses. Kazaam's balance sheets and income statement follow:
    KAZAAM COMPANY
    Comparative Balance Sheets
    December 31, 2005
    2005 2004
    Assets
    Cash.. . $ 53,875 $ 76,625
    Accounts receivable.. . 65,000 49,625
    Merchandise inventory.. . 273,750 252,500
    Prepaid expenses.. . 5,375 6,250
    Equipment.. . 159,500 110,000
    Accum. Depreciation—Equipment.. . (34,625) (44,000)
    Total assets.. . $522,875 $451,000
    Liabilities and Equity
    Accounts payable.. . $ 88,125 $116,625
    Short-term notes payable.. . 10,000 6,250
    Long-term notes payable.. . 93,750 53,750
    Common stock, $5 par value.. . 168,750 156,250
    Contributed capital in excess
    of par, common stock.. . 32,500 0
    Retained earnings.. . 129,750 118,125
    Total liabilities and equity.. . $522,875 $451,000
    KAZAAM COMPANY
    Income Statement
    For Year Ended December 31, 2005
    Sales.. . $496,250
    Cost of goods sold.. . 250,000
    Gross profit.. . 246,250
    Operating expenses
    Depreciation expense.. . $ 18,750
    Other expenses.. . 136,500 155,250
    Other gains (losses)
    Loss on sale of equipment.. . 5,125
    Income before taxes.. . $ 85,875
    Income taxes expense.. . 12,125
    Net income.. . $ 73,750


    Additional Information on Year 2005 Transactions
    a. The loss on the cash sale of equipment is $5,125 (details in b).
    b. Sold equipment costing $46,875, with accumulated depreciation of $28,125, for $13,625 cash.
    c. Purchased equipment costing $96,375 by paying $25,000 cash and signing a long-term note payable
    for the balance.
    d. Borrowed $3,750 cash by signing a short-term note payable.
    e. Paid $31,375 cash to reduce the long-term notes payable.
    f. Issued 2,500 shares of common stock for $18 cash per share.
    g. Declared and paid cash dividends of $62,125.
    Required
    1. Prepare a complete statement of cash flows; report its operating activities using the indirect method.
    Disclose any noncash investing and financing activities in a note.
    bhet's Avatar
    bhet Posts: 77, Reputation: 9
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    #7

    Sep 27, 2007, 07:33 PM
    Try to solve first the net income.

    After that, you can categorize the cash flow to its categories.
    nervouzpeoples's Avatar
    nervouzpeoples Posts: 15, Reputation: 1
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    #8

    Sep 28, 2007, 04:49 AM
    When you say that, solve the income first, is what confuses me because the net income is given in the problem- 73750.
    bhet's Avatar
    bhet Posts: 77, Reputation: 9
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    #9

    Sep 29, 2007, 06:00 PM
    Ahh. OK, I missed that he nest thing you should do now is to classify whether the transaction is an operting activity, investing activity, financing activity.

    Basically in classifying accounts we consider the following, if it is primarily to generate income it should be classified in operating activities. This includes current assets and curret liabilities.

    Based on you're given balances any increases in current assets shall be deducted in OA, decrease will be added to OA. And increases in current Liability shall be added to OA and vice versa.

    For the investing activities it will be the non-current assets.

    Increases shall be deducted, and decreases will be added.

    For financing it will be the equity and long term debts.

    Increase in equity and long term debts will be added and decreases will be deducted.

    Now you can start you're classification.
    nervouzpeoples's Avatar
    nervouzpeoples Posts: 15, Reputation: 1
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    #10

    Sep 29, 2007, 06:45 PM
    Okay, I think I got it now. My only other question is Whst is the Analysis of Changes column.

    For my cash flows chart- I got my net cash as (44,750), net increase as (22,750), cash-beginning 76,625 and cash ending 53,825. How did I do?
    bhet's Avatar
    bhet Posts: 77, Reputation: 9
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    #11

    Oct 2, 2007, 01:01 AM
    Try to solve it first, the changes in the balances, show you're solution and help you in some areas that you don't get.

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