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For a new business, not having the cash to make interest and principal payments on loans can lead to bankruptcy. A cash flow statement measures the cash that comes in (cash inflows) and cash that goes out (cash outflows) of a business. Like the typical income statement, the cash flow statement incorporates depreciation, but unlike the income statement, the cash flow statement is not based on the accrual method. A typical cash flow statement is shown in Table II-3. ) Page 72 Table II-3 Statement of Cash Flow for the Year Ended December 31, 1997Cash Flow from Operating Activities:Net Income (from Table II-2)$62,500Add (or deduct) items not affecting cash: Depreciation Expense $53,600 Decrease in Accounts Receivable $10,500 Increase in Accounts Payable $15,400Net Items not Affecting Cash$79,500$79,500Net Cash Flow from Operating Activities$142,000(after items not affecting cash)Cash Flow from Investing Activities Sale of Land $5,000 Purchase of Equipment $(170,000)Net Cash used by Investing Activities$(165,000)$(165,000)Net Cash Flow from Operating Activities$(23,000)(after items not affecting cash andinvesting activities)Cash Flow from Financing Activities Payment of Cash Dividends (50,000) Issuance of Bonds $100,000Net Cash Proceeds from Financing Activities$50,000$50,000Net Increase (or decrease) in Cash$27,000Beginning Cash Balance$167,900Ending Cash Balance$194,900 Page 73 In the following activities, the firm's cash is either increasing or decreasing.
It was removed from the problem simply to avoid confusion. In the quotient, the decimal is placed directly above the decimal of the dividend. A 0 is added to the new dividend in the thousandths digit. This is because 13 will not divide 6 into a number greater than 1, so the next step is to divide 60 by 13. An additional 0 at the end of the dividend does not change the value or magnitude of the dividend because it is placed to the right of the decimal point and any other digit. 60 divided by 13 equals a number greater than 4, but less than 5 Page 44 (because there is a number between 4 and 5 which, when multiplied by 13, equals 60).
You multiplied 1 ten by the multiplicand in this last subproduct and increased the magnitude 10 times by adding a 0 to the subproduct ones place. If the multiplier was 313 and another subproduct is needed, the third subproduct would be increased by a magnitude of 100two Os would be placed in the third subproduct (taking the places of the hundredths and tenths). After the subproducts have been created, add them together to obtain a final product. This is why it is important to increase the magnitude of some of the subproductsso that the appropriate place is kept.