1.x Statement of Cash Flows Flashcards
What cash flows are related to the transactions entering into the determination of net operating income?
Operating Activities
What cash flows involve the acquisition and sale of long-term assets used in the business, and nonoperating investment assets?
Investment Activities
What cash flows result from transactions with creditors and owners?
Financing Activities
What type of cash flow activity is interest received on a note receivable?
Operating Activity
What type of cash flow activity is interest paid on a note/bond payable?
Operating Activity
What type of cash flow activity are dividends paid to the owners/investors?
Financing Activity
What type of cash flow activity are dividends received from investment securities?
Operating Activity
What type of cash flow activity is collection of principal on a note receivable?
Investment Activity
What are the three main components of Investing Activities?
1) Loans made by the entity
2) Investments (AFS or HTM…trading are operating due to short maturity)
3) Property, Plant, & Equipment
*”L-I-P”
What balance sheet accounts are generally associated with Operating Activities?
Current assets and liabilities
What balance sheet accounts are generally associated with Investing Activities?
Long-term assets
What balance sheet accounts are generally associated with Financing Activities?
Long-term liabilities and shareholders equity
On the statement of cash flows, what type of activities are generally associated with current assets and liabilities?
Operating Activities
On the statement of cash flows, what type of activities are generally associated with long-term assets?
Investment Activities
On the statement of cash flows, what type of activities are generally associated with long-term liabilities and shareholders equity?
Financing Activities
What is the FASB’s preferred method of preparing the Operating Activities section of the statement of cash flows?
Direct method
Are gains and losses from the sale of investments reported using the direct method?
No. Only backed out using indirect method.
Would expenses not requiring the use of cash (such as depreciation) be reported using the direct method?
No. Only backed out using indirect method.
Under the indirect method, how are net increases in current operating liabilities handled?
Added to net income
Under the indirect method, how are net decreases in current operating liabilities handled?
Subtracted from net income
Under the indirect method, how are net increases in current operating assets handled?
Subtracted from net income
Under the indirect method, how are net decreases in current operating assets handled?
Added to net income
Under the indirect method, how are noncash losses and expenses handled?
Added to net income
Under the indirect method, how are noncash gains and revenues handled?
Subtracted from net income
Under the indirect method, how are losses and expenses whose cash effects are related to investing or financing cash flows handled?
Non-operating losses and expenses are ADDED to net income as the total proceeds (to include the loss/expense) from the sale are already included in Investing or Financing Activities.
Under the indirect method, how are gains and revenues whose cash effects are related to investing or financing cash flows handled?
Non-operating gains and revenues are SUBTRACTED from net income as the total proceeds (to include the gain/revenue) from the sale are already included in Investing or Financing Activities.
What are the supplementary disclosures required when using the direct method of presenting the statement of cash flows?
1) A schedule reconciling net income to cash flow from operations (indirect method)
2) Schedule of non-cash investing and financing activities (converting bonds to stock, asset purchase with 100% financing, etc.)
What are the supplementary disclosures required when using the indirect method of presenting the statement of cash flows?
1) Cash payments for Interest and Income Taxes must be disclosed!
2) Schedule of non-cash investing and financing activities (converting bonds to stock, asset purchase with 100% financing, etc.)
Are cash flows per share disclosed?
No. Not a financial metric available on typical finance website.
The accrual of which account primarily affects the sales revenue account?
Accounts Receivable
The accrual of which two accounts primarily affect the cost of goods sold account?
Inventory and Accounts Payable
What are the main steps in preparing a statement of cash flows?
1) Create a 3 column SCF template (1st column increases, 2nd decreases, 3rd net change)
2) Set up T-accounts for each balance sheet account
3) Analyze additional info and prepare journal entries for these transactions
4) Post any unreconciled balance sheet T-account differences to offset against appropriate SCF section
5) If using direct method, use income statement and related balance sheet accounts
How is depreciation expense treated for both of the SCF methods?
Ignored under the direct method and added back to net income under the indirect method (as is a noncash expense)
How is equity in earnings treated for both of the SCF methods?
Ignored under the direct method and subtracted from net income under the indirect method (as is a noncash revenue)
