Page 440 - Introduction to Business

414 PART 4 Accounting

For Cathy’s Candy Company, the largest component of owners’ equity is
retained earnings, $9,363 million (line 23) on December 31, 2004. Treasury stock
(line 24) is the common stock that Cathy’s Candy Company previously issued but
has now repurchased from stockholders and holds in its treasury. The amount for
treasury stock is shown in parentheses because it is a negative amount of owners’
equity. The final item, other equity, is a collection of miscellaneous equity accounts.

Statement of Cash Flows
statement of cash flows The financial The statement of cash flows for Cathy’s Candy Company is shown in Exhibit 12.5.
statement that presents cash inflows The statement of cash flows presents cash inflows (receipts) and outflows (pay-
(receipts) and outflows (payments)
under three categories of business ments) under three categories of business activities: operating activities, investing
activities: operating activities, investing activities, and financing activities.
activities, and financing activities
Operating Activities. Operating activities include sales that result in cash
receipts from customers. They also include purchases of inventory that result in
cash payments to suppliers. In addition, the firm disburses cash for expenses such
as employee wages, rent, and advertising. Operating activities are the most critical
of the three categories of business activities; they are the heart and soul of any busi-
ness firm. For 2004, Cathy’s Candy Company’s largest cash inflow from operating
activities was cash received from customers, $27,162 million (line 1).

EXHIBIT 12.5
Cathy’s Candy Company
Consolidated Statement of Cash Flows

Year Ended Year Ended
Dec. 31, 2004 Dec. 31, 2003
Cash Flows ($ millions) ($ millions)
From operating activities
1. Cash received from customers 27,162 19,521
2. Cash received from interest revenue 1 9
3. Cash paid to suppliers and employees (21,570) (16,011)
4. Cash paid for interest expense (42) (12)
5. Cash paid for income tax expense (1,482) (960)
6. Net cash provided by operating activities 4,069 2,547
From investing activities
7. Sales of short-term investments 1 522
8. Purchases of long-term investments (1) (9)
9. Purchases of property and equipment (2,391) (1,395)
10. Acquisition of other assets (84) (57)
11. Net cash used for investing activities (2,475) (939)
From financing activities
12. Borrowing on notes payable 3 132
13. Borrowing on long-term debt 1 1,485
14. Issuance of common stock 271 90
15. Purchase of treasury stock (2,676) (1,779)
16. Cash dividends paid (228) (237)
17. Net cash used for financing activities (2,629) (309)
18. Other 0 (9)
19. Net increase (decrease) in cash (1,035) 1,299
20. Cash at beginning of year 2,745 1,455
21. Cash at end of year 1,710 2,745

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