Cash Flow

Question 1

Statement of cash flow formula

Answer 1

\+operating
-investing
\+financing
\+beginning 
= ending cash flow

Question 2

Categories of Activities

Answer 2

Operating- current asset and liabilities (all business transaction)
Investing- noncurrent assets
Financing- debt (including noncurrent liabilities) and equity

Question 3

Operating Activities (Direct Method)

Answer 3

1-Cash received from customers
2-Cash paid to suppliers and employees
3-Dividends received
4-Purchases and sales of trading securities, If appropriate, based on the nature and purpose for which the securities were acquired
5-Income taxes paid
6-All other cash transactions not accounted for elsewhere
7-Interest received and paid

Question 4

Operating Activities (Indirect Method)

Answer 4

1-Record Net Income
2-Adjust net income for non cash items such as depreciation and the impairment of goodwill.
3-Reverse the income statement gain or loss shown on the sale of any asset
4-Adjust for changes in current assets and current liabilities except for cash and accounts treated elsewhere in the statement

Question 5

Financing Activities (Direct and Indirect Method)

Answer 5

1-All sums borrowed and/or repair loan (principal amount only)
2-Issuance and/or repurchase of stock or treasury stock
3-Issuing or payments of retiring bonds
4-Debt prepayment or debt extinguishment costs
5-Portion of a settlement of zero-coupon debt instruments attributable to principal

Question 6

Investing Activities (Direct and Indirect Method)

Answer 6

1-Principal collections or Loans made by the entity
2-Acquisition or disposal of available-for-sale or held-to-maturity Investments
3-Acquisition or disposal of Property, plant & equipment and intangibles
4-Cash received in settlement of corporate-owned life insurance policies
5-Cash received from payments on receivables transferred in exchange for a beneficial interest in a securitized transaction transferred transfers of beneficial interest in

Question 7

Liability and Assets treatment

Answer 7

Current assets increase: subtract
Current assets decrease: add
Current liabilities increase: add
Current liabilities decrease: subtract

Question 8

Direct method

Answer 8

(direct cash approach) each item on the income statement is converted from accrual method back to cash.

Note: Under the direct method, non-operating gains and losses are ignored. Non-cash items such as depreciation, bad debt expense, amortization expense and equity in earnings are ignored unless is included in selling expenses.

Question 9

Indirect method

Answer 9

(reconciliation approach) begin with net income and reconcile back to cash

Note: if an asset increased it is a deduction to the indirect method and vice versa
If a liability increased such as A/P of $20 , it is an addition to the indirect method and vice versa

Question 10

Determination of cash flow

Answer 10

Determination of cash flow- change in debit balance accounts will have the opposite effect on cash flow. Gains and losses proceed on sale
Investing activities- making loans, purchasing on trading securities, buy or sell property equity
Financial activities- anything that you do to finance your business such as debt and equity (noncurrent liabilities)
Dividends- received (operating) and paid (investing)
Interest on investment-received (operating) and paid (investing)