Cash Flow Statement

Question 1

The Cash Flow Statement

Answer 1

Tracks the movement of cash through a business over a period of time

Like a check register recording co transactions using cash and deposits

Question 2

What does the Cash Flow statement show?

Answer 2

Cash on hand at the start of a period + Cash received in the period - cash spend in the period = cash on hand at the end of the period.

Question 3

What Cash Transactions lower cash?

Answer 3

• paying salaries lowers cash
• Paying for equipment lowers cash
• Paying of a loan lowers cash

Question 4

What cash transactions increase cash?

Answer 4

• receiving money borrowed from a bank
• receiving money from investors for stock
• receiving money from customers

Question 5

What occurs in cash transactions?

Answer 5

Cash actually changes hands.

Question 6

Non-Cash Transactions

Answer 6

Company activities where no cash moves into or out of the company accounts

Have no effect on the Cash Flow Statement, but can affect the Income Statement and Balance Sheet

Question 7

What are examples of non-cash transactions?

Answer 7

• Shipping product to a customer
• receiving supplies from a vendor
• receiving raw materials required to make the product (for material transfer transactions - cash does not change hands during the transaction

Question 8

When does a company pay and receive cash in on cash transactions?

Answer 8

Cash comes in when the customer pays for the product, not when the company ships it.

Cash moves out of the company when it pays for materials, not when the company orders or receives them.

Question 9

Positive Cash Flow

Answer 9

The company has more cash at the end of the period than at the beginning.

Question 10

Negative Cash Flow

Answer 10

the company has less cash at the end of the period than at the beginning

too much negative cash flow can result in a company going broke, or insolvent.

Question 11

What are two sources of cash a business can receive?

Answer 11

1. Operating activities - receiving payment from customers

2. Financing activities - selling stock or borrowing money

Question 12

What are four different uses cash goes out of the business?

Answer 12

1. Operating activities - paying suppliers and employees
2. Financial activities - paying interest and principal on debt or paying dividends to shareholders.
3. Making major capital investments in long lived productive assets like machines
4. Paying income taxes to the government

Question 13

Cash from Operations

Answer 13

Normal day-to-day business activities (making and selling product) of a business is called operations.

Is shown separate from other cash flows on Cash Flow Statement
Examples: 
- Cash receipts 
- Cash disbursments
- Cash receipts

Question 14

Cash receipts

Answer 14

Inflows of money coming from operation the business

Question 15

Cash disbursements

Answer 15

Outflows of money used in operating the business

Question 16

Cash from Operations

Answer 16

Cash receipts - Cash disbursements = cash from operations

Question 17

Cash Receipts

Answer 17

• Collections or receipts comes from collecting from customers
• Increase the amount of cash the company has on hand.
• Receiving cash decreases the amount that is due on receivable show on the Balance Sheet.
• Are not profits (profits are recorded on Income Statement)

Question 18

Cash Disbursements

Answer 18

writing a check to pay for the rent, for inventory and supplies or worker’s salary

• lowers the amount of cash the company has on hand
• cash payments to suppliers lowers the amount the company owes as reported in accounts payable on the balance Sheet.

Question 19

What are the major cash flows:

Answer 19

1. Cash from Operations
2. Investment in fixed assets - buying a manufacturing facility and machinery to make a product.
3. Financial activities- such as selling stock to investors, borrowing money from banks, paying dividends, or paying taxes to the government.

Question 20

Fixed Asset Purchases

Answer 20

Money spent to buy property, plant, and equipment - long term investment in the long-term capability of the company to manufacture and sell product.

Is not considered part of operations and not reported in cash disbursements form operations.

PPE purchases are investments in productive assets.

After paying business will have less cash

Depreciation of fixed assets does not use cash

Question 21

Net Borrowings

New Borrowings - Amount Paid Back = Net Borrowings

Answer 21

increases the amount of cash the company has on hand.

Paying back a loan will decrease the cash on hand

Question 22

Income Taxes Paid and Income Taxes Owed

Answer 22

Everything a business sells something it owes more income tax.
Cash is reduced when the check is written to the government when cash is reduced on hand.

Reported on Cash Flow Statement

Question 23

Sale of Stock: New Equity

Answer 23

When people invest in stock they exchange one price of paper for another, real US Currency for a stock certificate

Cash increases when stock is sold

Question 24

Ending Cash Balance

Beginning Cash Balance - Cash Transactions = Ending Cash Balance

Answer 24

Beginning cash on hand + Cash received- cash spent = ending cash on hand.

Question 25

Cash Flow Statement Key Points

Answer 25

1. It is a check register recording all company’s payments (cash outflows/inflows) for a period of time.
2. If no cash changes hands then CFS is not changed
3. Balance Sheet and Income Statement may be changes by a non-cash transaction
4. Cash transactions reported on CFS do have some effect on the Income Statement and Balance Sheet