-related to the acquisiton and disposal of PPE -related to long live assets and investments not held for trading - related to lending money and collecting loans - generally inludes non current asset on sofp

Ch 13_ SOCF Flashcards by Unknown Unknown

what are the two ways we can prepare the operating activities section

INdirect, and direct method

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What is the purpose of the socf

1) help users assets company ability to get cash from operating activities
2) how company recieved and used other cash flows in both investing and financing activities
3) helps determine company ability to get FUTURE cash flows

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IFRS and ASPE is accrual based accounting, but what if you are interested in cash basis?

socf has no accounting for accruals!!!

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what is included in cash flows

cash and cash equivalents, highly liquid (Easily sold), CONVERTED TO CASH <3 mos

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what are operating activities

-related to principal income producing activities
-actvities relate to cash effects of transactions that create revenues and expenses
-includes relevant noncash current assets on the soofp where the related acct is a soi account

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Investing activities

-related to the acquisiton and disposal of PPE
-related to long live assets and investments not held for trading

related to lending money and collecting loans
generally inludes non current asset on sofp

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Financing activities

-related to changes in a company’s debt and equity
-obtaining cash from issuing debt and repaying the amount borrows
-obtaining cash from selling common shares, preferred shares, and paying dividends

-ncl and SE items

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what are examples of significant non cash activities

ISSUE OF SHARES TO PURCHASE ASSETS/REDUCE LIABILITY

CONVERTING DEBT TO EQUITY

EXCHANGE PPEE

ACQURING ASSETS AND DIRECTLY ASSUMING RELATED LIABITLIES

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do we report significant non cash activiies on socf?

NO!!!! if does not affect cash, do NOT report in socf

report in separate note to the fs

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format of socf

Operating activities
=net cash provided/used by operating activits

investing activities
=net cash provided/used by investing activits

fianncing activitiess
=net cash provided/used by financing activits

net increase/decrease in cash
cash beinning of period
cash, end of period

note x: signficant noncash investing and financing activies include

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heading for socf

company name
socf
for the – ended dec 31,2023

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operating activities have two types of sections

indirect and direct method!!

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what is the difference between indirect and direct method of recording operaitng actities

1) method used
2) presentation

the final value will awlways be the same

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indirect method of recording operating activtiies

-start with net income
- ADD/DEDUCT ITEMS NOT AFFECTING CASH TO GET TO NET CAHS

=net cash

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direct method of operating activities

-cash recipets from customers
-Cash payments
to suppliers
for operating expenses
to emplouees
for itnerest
for income tax

=net cash

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preparing the socf

1) prepare operating
2) prepare investing
3) prepare financing

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How to prepare operating activities section

1) determine net cash by converting net income from accrual basis to cash basis
- convert using indirect method or direct method

do most companies use the indirect method or direct method

indirect cuz it is easier to prepare

indirect method of preparing operating activites section:

+D/L
-G
+ dec in CA and inc in CL
- inc in CA and dec in CL

=start with net income/loss
+non cash expenses such as depreciation and losses
-non cash gains
+decrease in current asset accound and increases in current liability
-decrease in current liability account and increase in current asset account

examples of non cash gains and losses: inventory chanigng cuz of lcnrv rule, or depreicaiton

basically, you are removing all accruals from net income!

how to know what to add / subtract to net income for indirect method

whatever the signs are for the liabilites keep them, swap the signs for current assets

NOTE: ALL ACCOUNTS NEED TO BE NON CASH IMPACTING ACCOUNTS
- INV, A/R, PREP EXP, AP, IT PAYAB

Investing Activities

-measure cash flows realted to nca

ASSET ACQUISITION (negatives)
DISPOSALS (positivies)
deprecaition is non cash

Financing Activities format

analyze changes in ncl and equity
cahgnes to ntoes/loans/ mortgages and bonds payable
analyze share capital and RE for changes
DO NOT CARE ABOUT AMMORTIZATION OF DISC OR PREMIUM (NONCAHS)

HOW to complete socf

determine increase/decrease in cash for period

ensure ending balance agrees with sofp!!

NOTE: any non cash disclosures

4 phases of a company

intro
growth
maturity
decline

what is the highest socf activitty in intro section

financing!!!! op is second highest and investing is lowest

what is the highest socf activitty in growth section

financing is the highest but declining, op increases a lot, investing lowest

what is the highest socf activitty in maturity section

op is the highest, then investing, financing is the lowest foing down

what is the highest socf activitty in decline section

op is the highest, investing is second, and financing is last

what is Free cash flow

measure of the DISCRETIONARY cash remaining from op activities can be used to exapnd, reduce debt, pay more divs etc.

FREE CASH FLOW FORMULA

NET CASH FROM OP- NET CAPITAL EXPENDITURES- DIV PAID

is higher or lower better for free cash flow

higher

how to prepare the op activieis w direct method

you need to find net cash recipits and payments and subtract em

what does direct method DO

adjust sof from accrual basis to cash basis (build from ground up as opposed to net inncome odwn)

how to calculate cash recipeits from cust

sales + ( + dec in AR or - in AR) + ( + inc in Def rev or - dec in Def Rev)+ ( + inc in Ref Liab or - dec in ref liab) basically swap sign for AR keep sign for def rev and ref liab NOTE: if any other reciepts like interest, adjust like it is AR

what are the 3 cash payments we need in direct method

to supliers to other operating exp to income tax to interest

how to calc net cash pay to suppliers

COGS + ( + increase in inv or - dec in inv) + (+ inc in estim inv ret or - dec in estim inv ret) - ( + dec in a/p or - inc in a/p) swap the signs for the liability!!!! a/p keep sign for ca lik inv and estim inv

how to calc cash pay for other operating expenses

other operating expenses + ( + inc in prep exp or - dec in prep exp) + (+ dec in liab relating to other op exp or - inc in liab relating to other op exp) SWAP SIGN FOR LIABILITIES everything gets added

How to calc cash pay for income tax

income tax expense + (+ dec in it payable or - inc in IT payable) swap signs for current liabilities

how to calc cash pay for interest expense

interst expense + (+ dec in int payable or - inc in int payable) SWAP SIGNS FOR LIABILITY

IFRS RULES

-int and div recieved could be either operating or investing activities -int and div paid could be financing or operating actitives BUT U GOTTA PICK ONE AND STICK TO IT

ASPE RULES

int and div recieved= operating activiity int paid is operating activity div paid= financing activityi