Chapter 1 - Cash Flow Statement TO KNOW Flashcards
Net Income
Net Income is the profit after all expenses are deducted from revenue.
Example: A company earns $100K, spends $75K on costs, so Net Income = $25K.
Depreciation Expense
Depreciation Expense is a non-cash expense that reduces net income on the income statement but does not impact actual cash flow.
On the Cash Flow Statement:
It is added back to Net Income in the Operating Activities section because no cash is spent.
This adjustment ensures the cash flow statement reflects actual cash movement.
Change in Accounts Receivable
Change in Accounts Receivable adjusts cash flow based on customer payments.
Increase = cash outflow, Decrease = cash inflow (adjusted in Operating Activities).
Change in Inventory
Change in Inventory adjusts cash flow based on stock purchases.
Increase = cash outflow, Decrease = cash inflow (adjusted in Operating Activities).
Change in Accounts Payable
Change in Accounts Payable reflects how much a company’s unpaid supplier bills have increased or decreased. An increase boosts cash flow (delayed payments), while a decrease lowers it (paying off debts).
Example: If a roofing company’s accounts payable rises from $10,000 to $15,000, it kept $5,000 more in cash by delaying payments.
Change in Accrued Expenses
Change in Accrued Expenses tracks unpaid expenses that have built up but not yet been paid. An increase boosts cash flow (expenses recognized but unpaid), while a decrease reduces it (paying off past obligations).
Example: If a roofing company’s accrued wages rise from $8,000 to $12,000, it kept $4,000 more in cash by delaying payroll.
Total Cash Flow from Operations
Total Cash Flow from Operations shows the cash generated or used by a company’s core business activities. A positive number means the business is bringing in more cash than it spends, while a negative number indicates more cash is going out.
Example: If a roofing company collects $50,000 from clients but pays $30,000 in expenses, its operating cash flow is $20,000 positive.
Cash Flow from Investing
Cash Flow from Investing tracks cash spent on or received from investments like buying or selling equipment, property, or securities. A negative number means the company is investing in growth, while a positive number indicates asset sales.
Example: If a roofing company buys new trucks for $40,000, its cash flow from investing is - $40,000 (cash outflow).
Cash from the Sale of Investments
Cash from the Sale of Investments is the cash a company receives from selling financial assets like stocks, bonds, or real estate. It appears as a positive inflow under cash flow from investing.
Example: If a roofing company sells unused land for $50,000, it records + $50,000 under cash flow from investing.
Investment in Fixed Assets
Investment in Fixed Assets refers to cash spent on purchasing long-term assets like equipment, buildings, or vehicles. It appears as a negative cash flow under investing activities.
Example: If a roofing company buys new machinery for $30,000, it records - $30,000 under cash flow from investing.
Total Cash Flow from Investing
Total Cash Flow from Investing is the net cash spent on or received from investments like buying or selling assets. A negative number means the company invested in growth, while a positive number indicates asset sales.
Example: If a roofing company spends $40,000 on new trucks but sells old equipment for $10,000, its total cash flow from investing is - $30,000.
Cash Flow from Financing
Cash Flow from Financing tracks cash movements related to borrowing, repaying debt, or transactions with investors. A positive number means the company raised funds, while a negative number indicates debt repayment or shareholder distributions.
Example: If a roofing company takes out a $50,000 loan but repays $20,000 in debt, its cash flow from financing is + $30,000.
Cash from Notes Payable
Cash from Notes Payable refers to cash received from borrowing through short-term or long-term loans. It appears as a positive cash inflow under financing activities.
Example: If a roofing company secures a $25,000 loan, it records + $25,000 under cash flow from financing.
Cash from Long-Term Debt
Cash from Long-Term Debt refers to cash received from issuing long-term loans or bonds. It appears as a positive cash inflow under financing activities.
Example: If a roofing company secures a $100,000 loan to be repaid over 10 years, it records + $100,000 under cash flow from financing.
Cash from Equity Issuance
Cash from Equity Issuance is the cash a company receives from selling shares of its stock. It appears as a positive cash inflow under financing activities.
Example: If a roofing company raises $200,000 by issuing new shares, it records + $200,000 under cash flow from financing.
Dividends Paid
Dividends Paid refers to cash distributed to shareholders as a return on their investment. It appears as a negative cash outflow under financing activities.
Example: If a roofing company pays $50,000 in dividends to shareholders, it records - $50,000 under cash flow from financing.
Total Cash Flow from Financing
Total Cash Flow from Financing is the net cash flow from borrowing, repaying debt, issuing equity, or paying dividends. A positive number means the company raised more cash than it paid out, while a negative number indicates more cash was used to pay debts or dividends.
Example: If a roofing company takes a $100,000 loan, issues $50,000 in stock, and pays $30,000 in dividends, its total cash flow from financing is + $120,000.
Final Cash Balance
Final Cash Balance is the total cash a company has at the end of a period after accounting for all operating, investing, and financing activities. It reflects the company’s liquidity.
Example: If a roofing company starts with $50,000, generates $30,000 from operations, spends $10,000 on investments, and gains $20,000 from financing, its final cash balance is $90,000.
Net Cash Flow
Net Cash Flow is the total change in a company’s cash balance over a period, calculated as cash inflows minus outflows from operating, investing, and financing activities. A positive number means cash increased, while a negative number means cash decreased.
Example: If a roofing company has $50,000 from operations, - $20,000 from investing, and + $10,000 from financing, its net cash flow is + $40,000.
Beginning Cash
Beginning Cash is the cash balance a company has at the start of a period before accounting for cash inflows and outflows. It serves as the starting point for calculating the final cash balance.
Example: If a roofing company had $75,000 in cash at the start of the month, its beginning cash is $75,000.
Change in Cash
Change in Cash is the net increase or decrease in a company’s cash balance during a period, calculated as Net Cash Flow. A positive number means cash increased, while a negative number means cash decreased.
Example: If a roofing company’s cash balance rises from $50,000 to $70,000, the change in cash is + $20,000.
Ending Cash
Ending Cash is the total cash a company has at the end of a period, calculated as Beginning Cash + Change in Cash. It represents the final cash balance available.
Example: If a roofing company starts with $50,000 and has a + $20,000 change in cash, its ending cash is $70,000.
