cash flow statement Flashcards
cash
cash in hand and checking accounts
Cash equivalents
short-term, highly liquid investments (treasury bills, commercial papers, money market funds)
set of financial statements
- Balance sheet (statement of financial position) (static view)
- The income statement (dynamic view of business activity)
1 + 2 = 3. Statement of cash flows
Goal of the statement of cash flows
- primary purpose: provide info about the company’s cash receipts and cash payments during a period
- secondary purpose: provide cash-basis info about the company’s operating, investing, and financing activities
Cash flow statement provides info about:
- to assess a company’s ability to generate future cash flows
- to assess a company’s ability to pay dividends and meet various contractual obligations.
- To assess the difference between net income and net cash flow generated from operating activities
- To assess the cash and non-cash investing and financing transactions during the period.
3 types of cash flows
- operating activities
- investing activities
- financing activities
change in cash =
cash from operating operations + cash from investments + cash from financing
classification: interest paid
OPE
classification: interest received
OPE
classification: dividends paid
Fin
Classification: dividends received
OPE
Classification: taxes paid
OPE
3 documents you need to prepare CF STATEMENTS
Balance sheet, income statement, selected transactions
CF statement : Step 1 :
determine change in cash
CF statement : Step 2 : what are the two options
To determine the CFO (cash flow from operating activities):
- CFO = cash revenues - cash expenses (direct method)
- CFO = NI + non-cash expenses - [non-cash revenues] (indirect)
what about the direct method?
- only major classes of operating cash receipts and cash payments are reported.
- advantage: more consistent with the objective of the cash flow statement
- disadvantage: suggest that net cash flow from operating activities is a better measure of performance than accrued-based income.
direct or indirect or nothing (for ope): gain on asset sale
indirect
direct or indirect or nothing for (ope): increase decrease in cash flow
nothing
direct or indirect or nothing for ope: increase in dividend payable
nothing
direct or indirect or nothing for ope: cash paid for income taxes
direct
direct or indirect or nothing for ope: cash paid for interest expense
direct
direct or indirect or nothing for ope: increase in income tax payable
indirect
direct method: cash paid to customers
Sales revenue
+ decrease in acc. receivable
+ increase in unearned revenue
- increase in acc. receivable
- decrease in unearned revenue
direct method: cash paid to suppliers
COGS
+ increase in inventory
+ decrease in acc. payable
- decrease in inventory
- increase in acc. payable
direct method: cash paid for operating expense
operating expense
+ increase in prepaid expense
+decrease in accrued expense payable (e.g wages)
- decrease in prepaid expense
- increasee in accrued expense payable
Compute ending balance on share capital 2021
beg balance + share issued 2021 = ending capital
formula for net income
net income 2021 = net cash from operations + change in current non-cash operating assets - change in operating liabilities - depreciation - amortization - loss on asset sale + gain on asset sale
how to compute the change in current non-cash operating assets
add up the changes in inventory, receivables, prepaid expenses, devidend receivables
how to compute the change in current liablitites
Add up the changes in acc. payable, unearned revenue, and interest payable.
how to compute the ending balance on retained earnings in 2021
ending balance retained earnings 2021 = beginning balance retained eanings 2020 + net income 2021 - dividend for 2021 - dividend for 2021
How to compute the ending balance for cash in 2020
beg balance cash 2021 = ending balance cash 2021 - net cash flow from operations in 2021 - net cash flow from investing activities in 2021 - net cash flow from financing activites
how to compute inflow from issuing debt 2021
inflow from issuing debt 2021 = retained earnings (2021-2020) + short-term note payable (2021 -2020)
how to compute outflow from payments to debtholders in 2021
outflow from payments to debtholders in 2021 = bonds (2020-2021)
how to compute ending balance in dividend payable 2020
ending balance in dividend payable 2020 = inflow from issuing debt in 2021 - outflow from payments to debtholders in 2021 - net cash flow from financing activities in 2021
