Cash Flow Statement

Question 1

Net income

Answer 1

Starting point of cash flow statement when using indirect method

Question 2

+ D&A

Answer 2

Usually, the second line in a CFS is the add back of noncash D&A expense, which is embedded in COGS
and operating expenses on the I/S thus reducing net income

Question 3

• Increases in A/R, inventory, prepaid
  expenses, other current assets

Answer 3

Increases in working capital asset balances during the period should be reflected as cash outflows.
* Decreases in working capital asset balances during the period should be reflected as cash inflows.

Question 4

+ Increases in A/P, accrued expenses,
taxes payable, and other current
liabilities

Answer 4

Increases in working capital liability balances during the period should be reflected as cash inflows.
* Decreases in working capital liability balances during the period should be reflected as cash outflows.

Question 5

+/- Other changes

Answer 5

+ Impairments
* - Gains on sale of assets
* + Stock based compensation
* - Increases in deferred tax assets
* + Increases in deferred tax liabilities

Question 6

Cash from Investing Activities (CFI)

Answer 6

Capital expenditures (cash outflow)
* Purchases of intangible assets (cash outflow)
* Asset sales (cash inflow)
* Purchases and sales of debt & equity securities (cash outflow/inflow)

Question 7

Cash from Financing Activities (CFF)

Answer 7

Issuance/repayment of debt (cash inflow/outflow)
* Common stock issued/repurchased (cash inflow/outflow)
* Payment of common & preferred dividends (cash outflow)