chap 4

Question 1

• Is the financial
  statement that
  explains the net
  change in cash for
  the year
• It is stated “For the
  Year Ended”

Answer 1

Statement of cash flows / SCF

Question 2

Are related to the main revenue
-producing activity of the business

Answer 2

Operating Activities

Question 3

Cash transactoons related to the acquisition and disposal of long term assets such as PPE and intangible assets

Answer 3

Investing Activities

Question 4

Cash transaction with equity owners and long term creditors.

Answer 4

Financing Activities

Question 5

Examples of Operating activities

Answer 5

Cash from customers, cash from fees, cash payments to suppliers, inteerest payminterestente, income tax payment

Question 6

Examples of Investing activities

Answer 6

• acquisition of property, plant, and equipment, intangible assets, and other long-term
  assets
• cash proceeds from the disposals of long-term assets
• cash flows from investing activities
  hints at the company’s ability to generate cash in the future
  *Negative cash flows imply that the a company used cash to acquire long-term assets intended to generate cash and revenue in the future

Question 7

A section of a company’s cash flow statement, which shows the net flows of cash that are used to fund the company.

Answer 7

Cash Flow from Financing Activities

Question 8

Examples of cash flow transactions under Financing Activities

Answer 8

Proceeds from issuing common shares (or capital contribution from owners)
Proceeds from issuing long-term Promissory notes or getting a long- term loan from a bank
* Dividend payments
* Withdrawals of owners
* Payment for principal of long-term loan

Question 9

shows the reconciliation from accrual net income to net cash flows from operations

Answer 9

INDIRECT METHOD OF PREPARING THE SCF

Question 10

Adjustments to net income include the following:

Answer 10

Non-cash expenses such as depreciation and amortization are added back to the income.
* Recall that depreciation decreases the net book value of property, plant, and equipment and increases the expenses.
* This is n expense that does not have a cash counterpart.
* We refer to these as “non- cash” expenses.
*Changes In current assets and current liabilities

Question 11

Increase in current assets

Answer 11

Deduct from net income

Question 12

Decrease in current assets

Answer 12

Add to net income

Question 13

Increase in current liabilities

Answer 13

Add to net income

Question 14

Decrease in current liabilities

Answer 14

Deduct from net income

Question 15

inform the readers of a company’s financial position, results of operations, cash flows, and changes in equity. However, this information is not sufficient to help readers make decisions about the business. Let us look at the succeeding scenario to understand this point. For example, two companies asked you to invest in them as part owner.

Answer 15

Financial Statements

Question 16

is the process of evaluating risks, performance, financial health, and future prospects of a business using computational and analytical techniques with the objective of making economic decisions.

Answer 16

Finacial Statement analysis

Question 17

also known as trend analysis. It is a technique that involves the comparison of a line item (account) over a number of periods. Imagine comparative financial statements are laid down side by side (Figure 1).

Answer 17

Horizontal analysis

Question 18

Horizontal analysis uses financial statements of two or more periods

Question 19

Peso change

Answer 19

= Balance of Current Year-Balance of Prior Year
Peso Change

Question 20

Percentage change=

Answer 20

=Peso change /
Balance of Prior Year

Question 21

is the preparation of common-size financial statements. It is a technique that expresses each financial statement line item as a percentage of a base amount. For the SFP, the base amount used is total assets. On the other hand, sales or net sales are used as base amount for the SCI

Answer 21

Vertical analysis