Hi, Else here.
And today what we're going to do is the statement of cash
flows T-account proof.
Now, here's an agenda what we're going to do.
Be aware that I'm going to split this into a number of videos,
otherwise it will go too long.
So first, we're going to go through the steps
in the process for doing the T-account proof just
so you know what is involved.
It looks like there's a lot of steps, but don't get to panic,
they go very, very quickly.
Next, we're going to do example 1, Alexis Inc., which
is a more basic example.
Example 2, Cooper Company is a little bit more complicated.
And then example 3, XYZ Company has two different proofs
that you have to do.
Let's start with the steps in the process.
For doing a T-account proof, the first thing we have to do
is determine whether a T-account proof is even required.
If any of these following things exist in your cash flow
question, then you know you're going to have
to do a T-account proof.
Key is looking at the additional information.
It'll always indicate if multiple or only one
of the following exists.
So I'm going to move the page down a little.
Any time you see anything at all that has been sold,
you probably need a T-account proof.
So that's if you see the sale of a tangible asset--
property, plant, and equipment-- an intangible asset,
such as a patent or copyright, any investment activity that
is both for the current investments, that's say trading
investments, or if you see long term.
If they have been sold, you're going
to have to look at the T-account proof.
If any of the above-- so intangibles,
tangibles, or investments-- have been
exchanged for debt or equity.
So this means that I have purchased equipment in exchange
for common shares.
Finally, if equity or debt has had a debit and a credit.
To give an example, debt has been repaid,
so that would be a debit to loan payable.
And we also took out a new loan, which would
be a credit to loan payable.
If I take the net of those two amounts,
I'm going to get one number, but it's hiding information.
So notice I place here, key.
There was both a debit and a credit to any account
where applying the formula would hide important information
from who?
The users of the financial statements
so that they can't make informed decisions.
If any of those things happened, you
know you have to do a T-account proof.
So now, how do we do the process of the T-account proof?
First, we draw a blank T-accounts.
So we're going to draw blank T-accounts
for any of the accounts.
So if it was equipment, put a T-account
for the equipment obviously, and I would also
put a T-account for the related accumulated depreciation.
Next, if it involves a sale, provide the blank entry
for the sale.
If I've sold equipment, we know what the entry is.
We know this from previous knowledge.
There's going to be a debit to cash, a debit
to accumulated appreciation, a credit to equipment,
and then there's going to be this blank here.
And of course the blank is for either the gain
on sale, which is a credit account,
or the loss on sale, which is a debit account.
And until we do our research, we won't know which one it is.
Step 4, using the statement of financial position,
also called of course the balance sheet under ASPE,
fill in the opening and closing amounts on the T-accounts.
So let's jump back up here for a second.
Remember these T-accounts right here.
If I learned that equipment had an opening balance of 70,000,
and that would be from the previous statement
of financial position, also called the balance sheet,
I would know this, 70,000, and then
I found out that at the end of the year they had 82,000,
I would fill this in.
If the opening balance here was 28,000
and the closing balance was 20,000, I fill that in also.
So I'm filling in all the information that I can.
All right, so let's go back here.
So fill in the opening and closing
amounts on the T-accounts.
Number 5, using the income statement--
so now we're moving onto the income statement--
fill in the depreciation expense, if available,
and the gain and loss on disposal or sale, if available.
If those amounts are not available,
keep in mind that you're going to have to look elsewhere.
Last thing-- using the additional information,
fill in everything else that you can.
So the additional information will always give you something.
Make sure you fill it in.
What are we filling in?
Remember the two things we are filling in--
we are filling in this right here,
any information for the T-accounts,
and we're also filling in anything for--
and this was just an example.
We're not just talking about the sale of property, plant,
and equipment.
It can apply to anything.
Fill in any information you have from here.
Once we have that, solve for all your unknowns.
If done correctly, there is nothing that cannot be solved,
which is absolutely true.
What is the last step in the process?
Categorize and provide the indicator for everything
that will be used on the cash flow statement.
So what does categorizing mean?
Categorizing means to identify the activity.
O would mean operating, I mean investing,
and of course F would mean financing.
Provide the indicator.
The indicator would be either a plus or minus
for each of the activities.
So once we have that, step 9, fill in the cash flow.
All right, so let's move on to our first example,
but I'm going to do that in a new video.
See you then.