Cash vs Profit Keywords and Questions

Question 1

Dividends

Answer 1

A share of profits and retained earnings that a company pays out to its shareholders and owners

Question 2

Surplus

Answer 2

The amount of an asset or resource that exceeds the position that is actively utilised

Question 3

Deficit

Answer 3

Occurs when expenses exceed revenues, imports exceed exports or liabilities exceed assets

Question 4

Cash flow statement

Answer 4

Shows the movements of cash resources during a particular accounting period

Question 5

What are the differences between cash and profit?

Answer 5

Cash
Actual money
Notes and coins in hand
Deposits in the bank or similar institutions accessible to the business on demand

Profit
Profit is a result of revenues minus expenses

Question 6

What is the purpose of the statement of cash flow?

Answer 6

1) To predict future cash flows
2) Evaluate management decisions
3) Determine the ability to pay dividends to shareholders and payments to creditors
4) Show the relationship of net income to the business’ cash flow

Question 7

When preparing a cash flow statement what are the operating activities?

Answer 7

The activities involved in earning revenues

Question 8

When preparing a cash flow statement what are the investing activities?

Answer 8

Changes in non-current assets and investments.

Purchase of fixed assets

Sales of non-current assets

Question 9

When preparing a cash flow statement what are the financing activities?

Answer 9

Changes in non-current liabilities and equity

Issuance of equity

Payment of dividends

Capital. financial lease payments

Question 10

How do you setup a statement of cash flow?

Answer 10

‘Company name’
Statement of cash flow
‘For the year ended xxxx’

Cash flows from operating activities:
List of individual inflows and outflows
Net cash provided by operating activities

Cash flows from investing activities:
List of individual inflows and outflows
Net cash provided by investing activities

Cash flows from financing activities:
List of individual inflows and outflows
Net cash provided by financing activities

Net increase/decrease in cash

Cash balance at beginning of the period

Cash balance at the end of the period

Question 11

What are the inflows that go into cash flows from operating activities?

Answer 11

Sales to customers

Interest received and dividends recieved

Question 12

What are the outflows that go out of cash flows from operating activities?

Answer 12

Suppliers of merchandise and services

Employees

Lenders for interest

Governments for taxes

Interest and dividends paid

Question 13

What are the inflows that go into cash flows from investing activities?

Answer 13

Selling investments and plant assets

Collecting of principal on loans

Question 14

What are the outflows that go out of cash flows from investing activities?

Answer 14

Payments to acquire investments and plan assets

Purchase debt or equity investments

Make loans

Question 15

What are the inflows that go into cash flows from financing activities?

Answer 15

Borrowing

Owners

Question 16

What are the outflows that go out of cash flows from financing activities?

Answer 16

Repayments of borrowed funds

Owners for dividends

Question 17

What are the elements of operating cash flows?

Answer 17

Current assets

Current liabilities

Question 18

What are the elements of investing cash flows?

Answer 18

Long-term assets

Question 19

What are the elements of financing cash flows?

Answer 19

Long-term liabilities

Owners’ equity

Question 20

What are the three basic adjustments to operating activities with the indirect method?

Answer 20

1) Add back the depreciation expense

2) Add back losses and subtract gains associated with the sale of investment or property, plant and equipment

3) Adjust for changes in current liabilities and current assets associated with operations

Question 21

What are the changes in current assets with the indirect method if there is an increase in the current asset?

Answer 21

Decrease in cash

Question 22

What are the changes in current assets with the indirect method if there is an decrease in the current asset?

Answer 22

Increase in cash

Question 23

What are the changes in current laibilites with the indirect method if there is an increase in the current liability?

Answer 23

Increase in cash

Question 24

What are the changes in current liabilities with the indirect method if there is an increase in the current liability?

Answer 24

Decrease in cash