13.1-SOCF Flashcards
DIFFERENCE: between soi and socf
soi: accrual basis, doesnt focus on cash
socf: cash basis
DIFFERENCE: sofp and socf
sofp: indicates changes in assets and liabilities, but not cash
socf: indicates changes in cash
DIFFERENCE: SOCE and SOCF
SOCE: shows dividends declared, not paid
SOCF: shows paid divdeneds
what is the goal of the socf
1) assess companys ability to generate cash from operating activtiies
2) determine how the company recieved and used other cash flows (investing/financiing)
what is cash flow
change in cash and cash equivalents
cash equivalent
short term , highly liquid investmetns
=purpose: meet short term needs for cash
or liabilities in the short term (bank indebetedness)
examples of cash equivalents
- term deposit (<90 days)
=line of credit (bank nindebetedness)
operating activties
a company\s principal income-producing activtiies
cash related to revenues and expesnes
investing actitivites
acquistion and disposal of non current assets!!
-> purchasing and disposal of ppe and investments not held for trading
-? lending money adn collecting loans
financing activites
related to changes in debt and equity
-? obtaitning cash from issuing debt and repaying the amounts borrowed
-? receivng cash from issuing shares and paying cash for divdiends and buying back sharea
what is cash receipt
cash inflow
what is cash payment
cash outflow
operating activites= soi items, cash inflows
- from sale of g/s
- from interest and dividends received
- from prooceeds received from the sale of trading investments
operating activites= soi items, cash outflows
- to suppliers for inventory
- to employees for salaries
- to govt for taxes
- to creditors for interest
- to others for expenses
- to others for trading investments
investing activites, cash inflwos
- from sale of ppe
- from sale of long term debt or equity
- rom collecting principal on loans to other companies
investing activites, cash outflows
- to pruchase ppe
- to purchase investments in debt or equity securities of other companies
- to make loans to other companies
financing activties, cash inflow
- from selling shares
- from issuing debt
financing activties, cash outflow
- to shareholders as divdiends
- to prepay loan principal or repurchase shares
where are interest payments reported
oeratinga ctivities
what are some activites not reported on socf
-issuing shares to purchase assets/reduce liabilities
-converting debt to equity
-exchanging ppe
-acquiring assets by asuming liabilities
because thes do not affect cash
where should u present significant non cash investing and financing activties?
on the bottom of socf in a note
format of socf
company name
socf
for the period ended xxx
oeprating acitvities
investing activiites
finacning activities
net increase/decrease in cash
cash beginning
cash end
two ways to present operating cash flows
indirect method
direct method
indirect method
- show net incomes
- adjust this amount to a cash basis by adjusting for non cash elements
direct method
- show specific revenues and expenses on a cash basis rather tahn accrual basis
We will explain the indirect method in detail in the next section and the direct method in Appendix 13A. Regardless of whether the indirect or direct method is used, the resulting total net cash provided or used by operating activities will be exactly the same. Both the indirect and direct methods are permissible choices to present cash flows from operating activities for both publicly traded and private companies. Accounting standards encourage, but do not require, the use of the direct method. The direct method is considered to be more informative for users and is easier to compare with other financial statements. The direct method was used in Illustration 1.13 for Sierra Corporation in Chapter 1. Despite the preference of standard setters, most companies use the indirect method because it is easier to prepare and because it provides information on the management of working capital. You will recall that we first learned about working capital—the difference between total current assets and total current liabilities—in Chapter 2. Cineplex, introduced in our chapter-opening story, and its competitors use the indirect method and manage their working capital carefully.
We will explain the indirect method in detail in the next section and the direct method in Appendix 13A. Regardless of whether the indirect or direct method is used, the resulting total net cash provided or used by operating activities will be exactly the same. Both the indirect and direct methods are permissible choices to present cash flows from operating activities for both publicly traded and private companies. Accounting standards encourage, but do not require, the use of the direct method. The direct method is considered to be more informative for users and is easier to compare with other financial statements. The direct method was used in Illustration 1.13 for Sierra Corporation in Chapter 1. Despite the preference of standard setters, most companies use the indirect method because it is easier to prepare and because it provides information on the management of working capital. You will recall that we first learned about working capital—the difference between total current assets and total current liabilities—in Chapter 2. Cineplex, introduced in our chapter-opening story, and its competitors use the indirect method and manage their working capital carefully.
where is the socf prepared from
NOT FROM ADJUSTED TRIAL BALANCE, BUT FROM CHANGES IN ACCOUNT BALANCES over a perido of time
- comparative statement of financial position
- statement of income (to determine the cash from operating actviities)
- additional info
steps to prepare socf
(operating=indirect method)
- prepare operating activites
- prepare inveting activties
- prepare finacning activites
- complete socf
