Ch.7: Cash Flow Statement Flashcards
Taxes paid falls under which cash flow category?
CFO
Cash received or paid in short and long term borrowing is part of which cash flow section?
CFF
Current assets and current liabilities, excluding ___ and ___ fall under which cash flow section?
Excluding current maturities of long term debt and dividends payable belong under CFO
What do you do when you see gains/losses in the income statement relating to the cash flow statement?
I need to perform transaction analysis to get the true amount of cash received. For example, if the change in investments is (4), that indicates that the firm sold the investment and recieved money. However, that does not reflect all of the cash received, becuase of the way gains are accounted for. Thus, if the change was (4) and the gain was 5, then the total cash received for that sale was 9. So, that will be the adjustment for CFI, but I have to subtract the gain of 5 in order to avoid double counting.
- Non current assets fall under which cash flow section, and non current liabilities fall under which section?
- Owners Equity falls under which cash flow section?
- Non current assets=CFI
Non current liabilities=CFF
- Owners Equity=CFF, except for retained earnings which is both CFO (due to NI) and CFF (due to dividends)
Cash paid as dividends falls under which cash flow statement?
CFF
What is the indirect method of deriving CFO? (show why it is the preferred method)
CFO= NI+Depreciation/Amortization expense - Gains + Losses - Changes in CFO-related assets + Changes in CFO related liabilities
You subtract changes in CFO related assets to avoid double counting within NI. For example, if AR increases, that increase is going to NI. However, that is not a cash increase, but remember that it is reflected in NI. So, remove the AR affect from the cash profile.
On the contrary, imagine AP increasing. That is an expense reducing NI, which is the starting point for CFO. So, to remove the deducation, the change needs to be added.
Gains/losses from investments/PPE need to be adjusted for as well. Refer to the income statement
Cash received or paid in the sale or purchase of PPE falls under which cash flow category?
CFI
How are CFI and CFF derived?
Use the indirect method. Go account by account. Assume that increases in PP&E and availabe for sale securities are the result of cash purchases.
Investigate retained earnings to see if change is solely NI driven or due to dividends.
Assume financing involves cash transactions.
Cash received or paid in transactions involving the sale or purchase of trading securities involves which cash flow category?
CFO
Cash received or paid in the sale or purchase for available for sale securities falls under which cash flow category?
CFI
Interest paid and received falls under which cash flow category?
CFO
Dividends received falls under which cash flow category?
CFO
What are the two methods for deriving the CFO portion on the cash flow statement?
Direct and indirect method.
