Types of Cash Flows

There are three types of cash flows: (1) cash flows from operating activities, (2) cash flows from investing
activities, and (3) cash flows from financing activities

1.​ Three types of cash flows

TYPES OF CASH INFLOWS AND OUTFLOWS
Operating activities - Income statement items
Cash inflows:
●​ From sale of goods or services.
●​ From interest received and dividends received.

Cash outflows:
●​ To suppliers for inventory.
●​ To employees for wages.
●​ To government for taxes.
●​ To lenders for interest.
●​ To others for expenses.

Investing activities - Changes in investments and long-term assets

Cash inflows:
●​ From sale of property, plant, and equipment.
●​ From sale of investments(bond, stock) in debt or equity securities of other entities.
●​ From collection of principal on loans to other entities.

Cash outflows:
●​ To purchase property, plant, and equipment.
●​ To purchase investments in debt or equity securities of other entities.
●​ To make loans to other entities.

Financing activities - Changes in long-term liabilities and stockholders' equity

Cash inflows:
●​ From sale of common stock.
●​ From issuance of debt (bonds and notes).

Cash outflows:
●​ To stockholders as dividends.(mua lại cổ phiếu)
●​ To redeem long-term debt or reacquire capital stock (treasury stock).
 2.​ Significant non-cash activities
They are non cash investing and financing activities) and must also be recorded due to full disclosure
principles. Several include:
(1)​Direct issuance of common stock to purchase assets.
(2)​Conversion of bonds into common stock.
(3)​Direct issuance of debt to purchase assets
(4)​Exchanges of plant assets

→ HOWEVER, do not include noncash investing and financing activities in the body of the statement
of cash flow. Report this information in a separate schedule.

Example 1:
Selected transactions for the Eldon Company are listed below.CIVIY.com
1. Collected accounts receivable.
2. Declared and paid dividends on common stock.
3. Sold long-term investments for cash.
4. Issued stock for equipment.
5. Repaid five year note payable.
6. Paid employee wages.
7. Converted bonds payable to common stock.
8. Acquired long-term investment with cash.
9. Sold buildings and equipment for cash.
10. Sold merchandise to customers.
Instructions
Classify each transaction as either (a) an operating activity, (b) an investing activity, (c) a financing activity,
or (d) a noncash investing and financing activity.

1.​ (a) cash inflow

2.​ (c) cash outflow

3.​ (b) cash inflow

4.​ (d)

5.​ (c) cash outflow

6.​ (a) cash outflow

7.​ (d)

8.​ (b) cash outflow

9.​ (b) cash inflow

10.​ (a) cash inflow

Example 2:
Selected transactions of Eller Company are listed below.
1. Common stock is sold for cash above par value.
2. Bonds payable are issued for cash at a discount. (bán giá thấp hơn)
3. Interest receivable on a short-term note receivable is collected.
4. Land is sold for cash at book value.
5. Accounts payable are paid in cash.
 6. Equipment is purchased by signing a 3-year, 10% note payable.
7. Cash dividends on common stock are declared and paid.
8. 100 shares of XYZ common stock are purchased for cash.
9. Merchandise is sold to customers for cash.
10. Bonds payable are converted into common stock.
Instructions
Classify each transaction as either (a) an operating activity, (b) an investing activity, (c) a financing activity,
or (d) a noncash investing and financing activity.

1.​ (c) cash inflow

2.​ (c) cash inflow

3.​ (a) cash inflow

4.​ (b) cash inflow

5.​ (a) cash outflow

6.​ (d)

7.​ (c) cash outflow

8.​ (b) cash outflow

9.​ (a) cash inflow

10.​ (d)

Practice Exercises: Problem 1 in Chap 17 (Excel)

1.​ Financing activities – Cash inflow

2.​ Investing activities – Cash outflow

3.​ Investing activities – Cash outflow

4.​ Operating activities – Cash outflow

5.​ Operating activities – Cash inflow

The Statement of Cash Flow

1.​ Format of the Statement of Cash Flow
 Net cash provided (used) by operating + investing + financing = Net change in
cash
Beginning cash flow + Net change in cash = Ending cash flow

2.​ Prepare the Statement of Cash Flow using the indirect method
Chỉ cần nhớ và luyện bài tập bảng sau là làm đc tất cả mọi bài. Lưu ý (+) có nghĩa là để số dương (add
lại) còn (-) là phải để số âm (deduct đi)
Indirect method: accrual basis accounting → cash basis accounting

Cash flows from operating activities

Net Income / Net Loss xxx

Adjustments:

Add: Depreciation Expense (+)

Less: Gain on sales of plant assets (equipment / land / …) (–)

Add: Loss on sales of plant assets (equipment / land / …) (+)

Less: Increase in current assets (–)

Add: Decrease in current assets (+)

Add: Increase in current liabilities (+)

Less: Decrease in current liabilities (–)

Net cash provided (used) by operating expenses xxx

Cash flows from investing activities

 Add: Sales of plant assets (equipment / land / …) (+)

Less: Purchase of plant assets (equipment / land / …) (–)

Net cash provided (used) by investing activities xxx

Cash flows from financing activities

Add: Issuance of common stock (+)

Less: Payments of dividends (–)

Add: Issuance of bonds (+)

Less: Redemption / Retirement of Bonds (–)

Net cash provided (used) by financing activities xxx

Net increase (decrease) in cash xxx

Cash in the beginning of the period xxx

Cash in the ending of the period xxx

Example:
Curren asset (Cash, AR, Inventory, Prepaid Expense)
Cash flows from operating activities

Net Income / Net Loss 24 000

Adjustments:

Add: Depreciation Expense (18 000 – 14 000)

(Depreciation Expense = Ending Accumulated Depreciation 4000
– Beginning Accumulated Depreciation)

Add: Loss on sales of long-term investment (18 000 – 16 000) 2000

Less: Increase AR (18 000 – 14 000) (4000)

Less: Increase in Inventory (27 000 – 18 000) (9000)

Add: Decrease in Prepaid expenses (9000 — 6000) 3000

Add: Increase in AP (17 000 – 7000) 10 000

Net cash provided (used) by operating expenses 30 000

Cash flows from investing activities

Add: Sales of long-term investment 16 000

Less: Purchase of equipment 28 000

(Purchase of equipment = ending equipment = beginning –
ending)

Net cash provided (used) by investing activities 12 000

Cash flows from financing activities

Add: Issuance of common stock (40 000 – 23 000)

17 000
(Issuance of common stock = Ending – Beginning)

Less: Payments of dividends (10 000 + 24 000 – 24 000) (12 000)

(Payments of dividends = Beginning Retained earnings +
Net Income – Ending Retained Earning)

Add: Issuance of bonds (47 000 — 37 000) 10 000

(Issuance of bonds = Ending Bonds Payable – Beginning
Bonds Payable)

Less: Redemption / Retirement of Bonds (10 000)

(Khoản giảm ở Bonds Payable)

Net cash provided (used) by financing activities 5000

Net increase (decrease) in cash (23 000 – 10 000) 13 000

Net Increase (decrease) in Cash = Cash at End – Cash at Beginning

Cash in the beginning of the period 10 000

Cash in the ending of the period 23 000

 Net cash provided (used) by operating activities 30 000

Less: Capital expenditure 28 000

Less: Cash dividends 12 000

Free Cash Flow (10 000)

Reynolds Free Cash Flow = Net cash provided (used) by operating activities – Capital expenditure
– Cash dividends
Free Cash Flows
Describes the cash remaining from operations after adjustment for capital expenditures and dividends

Note:
●​ Capital Expenditures: Chi phí đầu tư thêm vào đầu tư dài hạn (Purchase of plant assets như
equipment / land / …) bất kể ở dưới dạng hình thức nào (tiền mặt, cổ phiếu, trái phiếu, chuyển
đổi,...)

Example:
For the Lyon exercise a bove, its free cash flow is computed as:

Free Cash Flow

Cash provided (used) by operating activities 30 000

Less: Capital Expenditure (60 000 – 32 000 + 4000 – 0)

Capital Expenditure = Ending PPE – Beginning PPE + 28 000
Depreciation Expense – Disposals

Less: Cash dividends 12 000

Free Cash Flow (10 000)

Josh’s PhotoPlus reported net income of $73,000 for 2017. Included in the income statement
were depreciation expense of $7,000 and a gain on disposal of equipment of $2,500.