13.1-SOCF

Question 1

DIFFERENCE: between soi and socf

Answer 1

soi: accrual basis, doesnt focus on cash

socf: cash basis

Question 2

DIFFERENCE: sofp and socf

Answer 2

sofp: indicates changes in assets and liabilities, but not cash

socf: indicates changes in cash

Question 3

DIFFERENCE: SOCE and SOCF

Answer 3

SOCE: shows dividends declared, not paid

SOCF: shows paid divdeneds

Question 4

what is the goal of the socf

Answer 4

1) assess companys ability to generate cash from operating activtiies
2) determine how the company recieved and used other cash flows (investing/financiing)

Question 5

what is cash flow

Answer 5

change in cash and cash equivalents

Question 6

cash equivalent

Answer 6

short term , highly liquid investmetns

=purpose: meet short term needs for cash

or liabilities in the short term (bank indebetedness)

Question 7

examples of cash equivalents

Answer 7

• term deposit (<90 days)
  =line of credit (bank nindebetedness)

Question 8

operating activties

Answer 8

a company\s principal income-producing activtiies

cash related to revenues and expesnes

Question 9

investing actitivites

Answer 9

acquistion and disposal of non current assets!!
-> purchasing and disposal of ppe and investments not held for trading
-? lending money adn collecting loans

Question 10

financing activites

Answer 10

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

Question 11

what is cash receipt

Answer 11

cash inflow

Question 12

what is cash payment

Answer 12

cash outflow

Question 13

operating activites= soi items, cash inflows

Answer 13

1. from sale of g/s
2. from interest and dividends received
3. from prooceeds received from the sale of trading investments

Question 14

operating activites= soi items, cash outflows

Answer 14

1. to suppliers for inventory
2. to employees for salaries
3. to govt for taxes
4. to creditors for interest
5. to others for expenses
6. to others for trading investments

Question 15

investing activites, cash inflwos

Answer 15

1. from sale of ppe
2. from sale of long term debt or equity
3. rom collecting principal on loans to other companies

Question 16

investing activites, cash outflows

Answer 16

1. to pruchase ppe
2. to purchase investments in debt or equity securities of other companies
3. to make loans to other companies

Question 17

financing activties, cash inflow

Answer 17

1. from selling shares
2. from issuing debt

Question 18

financing activties, cash outflow

Answer 18

1. to shareholders as divdiends
2. to prepay loan principal or repurchase shares

Question 19

where are interest payments reported

Answer 19

oeratinga ctivities

Question 20

what are some activites not reported on socf

Answer 20

-issuing shares to purchase assets/reduce liabilities
-converting debt to equity
-exchanging ppe
-acquiring assets by asuming liabilities

because thes do not affect cash

Question 21

where should u present significant non cash investing and financing activties?

Answer 21

on the bottom of socf in a note

Question 22

format of socf

Answer 22

company name
socf
for the period ended xxx

oeprating acitvities
investing activiites
finacning activities
net increase/decrease in cash
cash beginning
cash end

Question 23

two ways to present operating cash flows

Answer 23

indirect method

direct method

Question 24

indirect method

Answer 24

1. show net incomes
2. adjust this amount to a cash basis by adjusting for non cash elements

Question 25

direct method

Answer 25

• show specific revenues and expenses on a cash basis rather tahn accrual basis

Question 26

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.

Answer 26

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.

Question 27

where is the socf prepared from

Answer 27

NOT FROM ADJUSTED TRIAL BALANCE, BUT FROM CHANGES IN ACCOUNT BALANCES over a perido of time

1. comparative statement of financial position
2. statement of income (to determine the cash from operating actviities)
3. additional info

Question 28

steps to prepare socf
(operating=indirect method)

Answer 28

1. prepare operating activites
2. prepare inveting activties
3. prepare finacning activites
4. complete socf