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TGS Year 1: Using the Direct Method to Prepare the Statement of Cash Flows

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Financial Accounting Fundamentals

University of Virginia

4.8 (763 Bewertungen) | 41K Teilnehmer angemeldet

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This course will teach you the tools you'll need to understand the fundamentals of financial accounting. Concise videos, the financial records of a small business, and "your turn" activities guide you through the three most commonly used financial statements: the Balance Sheet, the Income Statement, and the Statement of Cash Flows. Beyond recording transactions, you'll learn how to prepare these financial statements, and read and analyze them to draw basic conclusions about a company's financial health. By the end of this course, you will be able to: - Use journal entries to record transactions - Prepare and use t-accounts to summarize transactions recorded during an accounting period - Describe the three most commonly used financial statements and how they fit together - Prepare these financial statements based on transactions recorded during an accounting period - Draw basic conclusions about a company's financial health

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Kompetenzen, die Sie erwerben

Financial Accounting, Accounting, Financial Statement, Balance Sheet

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4.8 (763 Bewertungen)

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PG

Jul 31, 2017

One of the Best course on Financial Accounting. Gives end to end hands on experience of entire Accounting Cycle. Quizzes are really engaging and require hands on working in many cases.

YY

Jan 24, 2019

This course gives me a practical understanding of accounting principles and key financial statements, which is helpful for my work. Strongly recommend to my friends and colleagues

Aus der Unterrichtseinheit

The Statement of Cash Flows, Financial Statement Preparation

After learning about the Income Statement, revenue and expense transactions, and adjusting entries, we’re ready to move on to preparing our end-of-period financial statements. We’ll prepare the Income Statement and Balance Sheet based on the transactions that have been recorded. Then, we’ll dive into the Statement of Cash Flows (SCF) and learn how to prepare that financial statement. Finally, we’ll briefly discuss closing entries, since we've been preparing them as we've been going along!

The Statement of Cash Flows: A Conceptual Understanding10:19

TGS Year 1: Using the Direct Method to Prepare the Statement of Cash Flows6:02

TGS Year 1: Using the Indirect Method to Prepare the Statement of Cash Flows8:23

The Direct and Indirect Methods: A Summary3:34

Unterrichtet von

Luann J. Lynch
Almand R. Coleman Professor of Business Administration

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Skript

Let's apply all of this logic and conceptual understanding to preparing the statement of cash flow for the Garden Spot, for its first year of operations. We're going to start by using the direct method of preparation and financial statements. This is pretty simple, okay? Recall our cash T-account. It's been a while since we worked a lot with that cash T-account, but here it is again for the first year of operations. And then I have, also on the screen, an outline of the statement of cashflow. Remember operating activities, investing activities and financing activities, pretty straightforward. Because with the direct method of preparation, all we're doing is directly listing cash receipts and directly listing cash disbursements. This becomes a pretty straightforward exercise of taking things out of the T-account and putting them on the statement of cash flow. Or taking things from the T-account and putting them on the statement of cash flow. So let's just start with the upper left-hand side of the cash T-account. The company issued stock. Well, issuing stock is a transaction that is done with it's investors or owners, so that would go in financing activities. So I'll put proceeds from issuing stock. $60,000 inflow. The second thing, took out a loan. Proceeds from loan, $40,000. Cash sales, so they sold directly to customers and customers paid cash. That's an operating activity, right? So we're going to put that up here, collections From customers. That's an inflow. So we've dealt with the three inflows that show up on the left side of the cash T-account. So now let's move to the right side of the cash T-account, where we see the outflows. The company purchased a truck. Remember, purchase of long-lived assets shows up in the investing activities section. So let's say, purchase of truck, $12,000. That's an outflow, it's on the right-side of that cash T-account. Purchased equipment, Outflow of $10,000. It paid suppliers, paying suppliers is an operating activity. Payment to suppliers. That's an outflow, so we put it in parentheses. Paid for its operating expenses. Payment for operating items, outflow of 140. It made a loan payment, okay? Now remember, making a loan payment is a transaction with a creditor, so that's going to show up in the financing activities section. But recall, this loan payment was for $14,000. That included a $10,000 repayment of principle, repayment abbreviated of principle abbreviated. And it also included payment abbreviated of interest. Now remember, the repayment of the loan goes into the financing section. So repayment of loan principle, 10,000, that's an outflow. And then the payment of interest, recall that under US gap, we put that in the operating section. So payment for interest, $4,000. And then finally, our last item is paying taxes, that's an operating item. Payment of taxes, negative 990. And if we sum these, we have cash flow from operations, negative 64,990. Cash flow from investing of negative 22,000, and cash flow from financing of 90,000. And so our change in cash, if we add cash flow from financing, cash flow from investing, cash flow from operating. We get our total changing cash, which is $3,010, pretty simple. Taken directly from the cash T-account. So if it's so simple, why aren't we using that method again? It's because, although US GAAP allows us to prepare the statement of cash flow using the direct method, if a company chooses to do so. It also has to provide a reconciliation of net income to cash flow from operations. Since it has to do that anyway, most company choose to prepare the statement using the indirect method Here it is all prettied up, so you have a nice copy of the work we just did. Statement prepared using the direct method.

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