301668 Flashcards
Cash Flow
Cash flow is the amount of net cash that was generated by an entity during an accounting period. It is the difference between total cash inflows and total cash outflows.
Dunbarn Co. had the following activities during the year:
Purchase of inventory $120,000
Purchase of equipment 80,000
Purchase of available-for-sale
debt securities 60,000
Purchase of treasury stock 70,000
Issuance of common stock 150,000
What amount should Dunbarn report as cash provided (used) by investing activities in its statement of cash flows for the year?
$(210,000)
$(120,000)
$150,000
$(140,000)
$(140,000)
A statement of cash flows reflects an entity’s cash receipts and cash payments classified by major uses (i.e., operating, investing, and financing activities). The investing activities section shows positive and negative cash flows for transactions involving assets that are not held for resale (i.e., inventory), such as investments in debt and equity securities; plant, property, and equipment; and intangible assets.
Dunbarn should report $(140,000) in investing activities related to the purchase (i.e., use of cash) of equipment and AFS (available for sale) debt securities. Inventory transactions are classified as operating activities; treasury stock and common stock transactions are classified as financing activities.
Financing Activities
Financing activities is one of the three categories of cash flows on the statement of cash flows. It includes all transactions related to obtaining resources from owners and providing them with a return on, and a return of, their investment and to obtaining and repaying debt, including short-term and long-term debt, mortgages, finance lease obligations, seller-financed debt, and debt incurred to acquire treasury stock. (FASB ASC 230-10-20)
In governmental accounting, there are two categories of financing activities reported on the cash flow statement of proprietary funds or governments engaged in business-type activities: “noncapital financing activities” and “capital and related financing activities.” (GASB 2450.117–.122)
Investing Activities
Investing activities is one of the three categories of cash flows in the statement of cash flows. The category includes all transactions related to the making or collecting of loans and the acquiring and disposing of debt; equity instruments (of other entities); property, plant, and equipment; or a business unit.
FASB ASC 230-10-20
Operating Activities
Operating activities is one of the three categories of cash flows in the statement of cash flows. Operating activities are all transactions and other events that are not investing or financing activities. Operating activities generally include transactions that enter into the determination of net income and include production and delivery of goods and services, interest and dividends received, and payment of interest.
FASB ASC 230-10-20
Statement of Cash Flows
The statement of cash flows is one of the required financial statements. Cash receipts and cash payments are classified into three categories:
- Operating activities—all transactions and other events that are not investing or financing; generally include transactions that enter into the determination of net income. These include production and delivery of goods and services, interest and dividends received, and payment of interest.
- Investing activities—all transactions related to the making or collecting of loans and the acquiring and disposing of debt, equity instruments, or property, plant, and equipment.
- Financing activities—all transactions related to obtaining resources from owners and providing them with a return on, and a return of, their investment, and to obtaining and repaying debt.
Separate disclosure of noncash investing and financing activities is also required. Examples of such activities include obtaining an asset by entering into a finance lease, by exchange for another asset, or by the issuance of stock or debt.
The statement of cash flows can be prepared using either the direct or the indirect method.
FASB ASC 230-10-45 and 10-55
In governmental accounting, cash flow statements are presented for proprietary funds and governmental entities engaged in business-type activities. The direct method must be used and there are four headings in the statement: cash flows from operating activities, from noncapital financing activities, from capital and related financing activities, and from investing activities. (GASB 2450)
2115.09
The statement of cash flows (SCF) is presented in three primary sections: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities (in that order).
a. Cash flows from operating activities: Cash flows from operating activities include those cash flows resulting from transactions included in the determination of net income, unless specifically classified as financing or investing activities.
(1) Cash inflows from operating activities generally include the following:
(a) Cash receipts from sales of goods or services
(b) Cash receipts from interest and dividends on investments in another enterprise
(c) All other cash receipts that are not classified as either investing or financing activities
(2) Cash outflows classified as operating activities include the following:
(a) Cash payments to acquire materials for manufacture or goods for resale
(b) Cash payments to other suppliers and employees for goods and services
(c) Cash payments to governments for taxes, duties, other fees, or penalties
(d) Cash payments to lenders and other creditors for interest
(e) All other cash payments that are not classified as investing or financing activities
2115.09
Cash flows from investing activities: Cash flows from investing activities involve asset transactions other than cash (and cash equivalents) and those assets related directly to the determination of operating results (e.g., inventories, receivables).
(1) Specifically, the following are types of cash inflows from investing activities:
(a) Cash receipts from collections or sales of loans made by the enterprise and of other debt instruments that are purchased by the enterprise
(b) Cash receipts from sales of equity securities of other enterprises
(c) Cash receipts from the sales of property, plant, and equipment and other productive assets
(2) The following are categories of cash outflows from investing activities:
(a) Cash payments for loans made by the enterprise and payments to acquire debt instruments of other entities
(b) Cash payments to acquire equity instruments of other enterprises
(c) Cash payments to purchase property, plant, as well as equipment and other productive assets
2115.09
Cash flows from financing activities: Cash flows from financing activities involve debt and equity financing.
(1) Cash inflows from financing activities include the following:
(a) Cash proceeds from issuing equity instruments
(b) Cash proceeds from issuing bonds, mortgages, notes, and other short- and long-term debt instruments
(2) Cash outflows classified as financing activities are as follows:
(a) Cash payments of dividends or other distributions to owners, including outlays to reacquire the enterprise’s instruments
(b) Cash repayments of amounts borrowed
(c) Other principal cash payments to creditors who have extended long-term credit
FASB ASC 230-10-45-12
FASB ASC 230-10-45-13
