CH 11 Flashcards
Is NI or cash flow an indicator of growth in a company?
More so Ni, but both are equally important indicators for a successful business.
What is cash flow statement?
A summary of cash inflows and cash outflows during the reporting period sorted by operating, investing, and financial activities.
Is Dividends recorded in financial activities in cash flow statement?
No, dividends receipts are reported in operation activities while dividend payments are reported in financial activities.
What does income statement, changes in other current assets, and changes in current liabilities effect what activities on statement of cash flows?
Operation activities
What changes in cash flow statement effect what activity?
Investing activities
Changes in long term liabilities, common stock, retained earning( dividends paid) effect in cash flow statement’s activity?
Financial activity
Does net cash flow change and equal change in cash?
yes
Define non-cash activities?
Significant investing and financial activities that do not affect cash
What are examples of noncash activities for investing and financial activities?
Purchase of long term assets by issuing debt
Purchase of long term assets by issuing stock
Conversion of bonds payable into common stock
Exchange of long term assets
Are indirect and direct methods of operating activities are identical for both methods
yes
Define indirect method
Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows
Define direct method.
Adjusts the items on the income statement to directly show the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.
What is the first step of preparing a cash flow statement
Calculate net cash flows from operating activities, using information from the income statement and changes in current assets (other than cash) and current liabilities from the balance sheet
What is the second step of preparing a cash flow statement?
Determine the net cash flows from investing activities by analyzing changes in long term asset accounts from the balance sheet
What is the third step of preparing a cash flow statement?
Determine the net cash flows from financing activities, by analyzing changes in long term liabilities and stockholders’ equity accounts from the balance sheet.
What is the fourth step of preparing a cash flows statement?
Combine the operating, investing, and financing activities, and make sure the total change from these three activities agree with the net increase (decrease) in cash shown at the bottom of the statement of cash flows.
Cash flows statement converts accrual flows into cash flows from net income?
yes
What are income statements non-cash items?
Revenues and expenses that don’t affect cash
Revenues and expenses that do affect cash not by adjustments in current assets or liabilities that are revenue and expenses
Does indirect method reconciles and redirects net income to operating cash flows?
No, it does not redirect flows into other activities. It only reconciles cash flows from net income.
Does depreciation expense increase net come?
No, it reduces net income.
How do you record loss on sale of land?
Cash (DR)
Loss (DR)
Land (CR)
(record loss on sale of land)
Define journal of loss
The difference between cash received in the sale of land (reported as an investing activity) and the cost of the land.
Is loss an expense then it regains amount back?
Yes because loss is recorded as a long term asset
How do you record an increase in accounts receivable?
Cash( to balance) [DR]
A/R( DR)
Revenues ( from income statement)[CR]
(record increase in accounts receivable)
What is return on assets?
Net income divided by average total assets
What is cash return on assets?
Cash return on assets = operating cash flow / average total assets
Define Cash flow to sales
Net cash flows from operating activities divided by sales revenue; measure the operating cash flow generated per dollar of sales.
Define asset turnover
Sales revenue divided by average total assets; measure the sales revenue generated per dollar of assets.
