Cash Flow Analysis Flashcards
a basic component of the financial statements which summarizes the operating, investing and financing
activities of an entity. It provides information about the cash receipts and cash payments of an entity during a period.
CASH FLOW STATEMENT
Purpose of cash flow statement:
TO PROVIDE RELEVANT INFORMATION ABOUT CASH RECEIPTS AND CASH PAYMENTS OF AN ENTITY DURING A PERIOD
Provides information that enables users to evaluate the changes in net assets of an entity, its financial structure, liquidity and
solvency
Cash flow statement
Is useful in assessing the ability of the entity to generate cash and cash equivalents
Cash flow statemen
enhances the comparability of operating performance by different entities
Cash flow statement
PAS 7 provides that an entity shall prepare a cash flow statement and shall present it as an ___________ of its financial statements for each period for which financial statements are presented.
INTEGRAL PART
PAS 7 provides that an investment normally qualifies as cash equivalent only when it has a short maturity of __________ or less from the date of acquisition. The investment must be acquired __________ or less BEFORE MATURITY
THREE MONTHS
[TRUE or FALSE] Equity securities CANNOT qualify as cash equivalent because shares of stock do not have maturity date. However, preferred shares with SPECIFIED REDEMPTION DATE and acquired three months before the redemption date can qualify as cash equivalent
True
[EUMERATION] CLASSIFICATION OF CASH FLOWS:
(1)Operating activities, (1)Investing activities, (3)Financing Activities
derived primarily from the principal revenue producing activities of the entity. It generally result from the cash
effects of transactions and other events that enter into the determination of net income or loss.
Operating activities
derived from the acquisition and disposal of long-term assets and other investments not included in cash
equivalents. These are the cash effects of transactions involving nonoperating assets, such as investments, property plant and equipment, intangible assets and other noncurrent assets
Investing activities
derived from the equity capital and borrowings of the entity. These are cash flows that result from transactions
between the entity and its owners (equity financing) and between entity and its creditors (debt financing).
Financing activities
[TRUE OR FALSE] Investing and financing transactions that do not require use of cash or cash equivalents shall be included in the cash flow statement.
FALSE. Such transactions shall be disclosed elsewhere in the financial statements either in the notes to financial statements or in a separate schedule.
METHODS USED IN DETERMING NET CASH FLOW FROM OPERATING ACTIVITIES: shows in detail/ itemizes the major classes of gross cash receipts and gross cash payments.
Direct method
METHODS USED IN DETERMING NET CASH FLOW FROM OPERATING ACTIVITIES: begins with the accrual basis net income and applies a series of adjustments to convert the income to cash basis.
Indirect method
Repayment of debt principal
a. Operating activities
b. Investing activities
c. Financing activities
c. Financing activities
(Outflow)
