Cash Flow Statement Theory

Question 1

What are the Three components of the Cash Flow statement?

Answer 1

CFO (Cash flow from operations)
CFI (Cash flow from investing)
CFF (Cash flow from financing)

Question 2

What does each component of the cash flow statements comprehends?

Answer 2

CFO
cash collections and payments from operating

CFI
includes transactions from NON CURRENT ASSETS

CFF
includes transactions involving NON CURRENT LIABILITIES AND EQUITY

Question 3

Explain the Direct Method to calculate the CFS

Answer 3

All cash transactions that have taken place in the operating activity of the company on a cash basis

+ collections from operations
- payments from operations
=CFO
+ collections from investing
- payments from investing
=CFI
+ collections from financing
- payments from financing
=CFF

CFO+ CFI+ CFF
=Change in cash
+ starting cash balance
=ENDING CASH

Question 4

Explain the Indirect Method to calculate the CFS

Answer 4

starts with accueal accounting NET INCOME
it reconciles NI with CFO

+net income
+amortization
+depreciation expense
-/+ increase/decrease in receivables
-/+ increase/decrease in inventories
+/- increase/decrease in payables
=CFO

+ collections from investing
- payments from investing
=CFI

+ collections from financing
- payments from financing
=CFF

CFO+ CFI+ CFF
=Change in cash
+ starting cash balance
=ENDING CASH