Chapter 12 Statement of Cash Flows Flashcards
What do statement of cash flows do?
Shows all the cash inflows (cash receipts +) and cash outflows (cash payments -) during the year
What are the 3 categories of the statement of cash flows?
- Operating
- Investing
- Financing
What is the purpose of the statement of cash flows?
To show the change (increase/decrease) in cash from beginning of year to end of year
What are operating activities?
Transactions that determine net income
Transactions in the ordinary course of business (“day to day” transactions)
What are examples of operation activities?
-Sale of inventory
-Paying expenses- salaries, utilities, rent
-Purchase of inventory/supplies
-Payment of interest expense
What are investing activities?
use of internal money to make money
What are examples of investing activities?
-Buying and selling Long Term assets
-Purchase and sale of Short Term investments
-Lending and collecting money for notes receivable
What are financing activities?
Use of external money
Transactions that effect both ST and LT notes payable and all LT liabilities and equity
What are examples of financing activities?
-all borrowing of money (ST/LT notes payable)
-issuance of stock
-paying of cash dividends
What are the two methods for the operating section?
Direct and Indirect
What is the direct method?
-used for investing and financing
-lists out every single transaction that occurred during the year
-too time consuming and lengthy to do for operation transactions
What is the indirect method?
-Starts with net income and either backs out or adds back any noncash transaction to end with the cash from operation activities
-harder to understand but more efficient
Does depreciation expense + or -?
+
Does gain + or -
-
Does loss + or -
+
Does bad debt expense + or -
+
What is the change in current assets and current liabilities?
Create a change column on the balance sheet (current yr # - prior yr #)
Current assets do the opposite (increase subtract, decrease add back)
Current liabilities do the same (increase add back, decrease subtract)
What is the Cash Flows on Total Assets ratio
-Helps to measure a company’s ability to meet its obligations, expand operations, and obtain financing
-Measures cash flows from operating activities
What is the equations for Cash Flows on Total Assets?
CF from operation activities/ average total assets (beg total assets + end total assets/2)
What are the steps to building the statement of cash flows?
- Create a change column on BS for all operating activity accounts (X cash)
= CY#-PY# - Create the statement of CF
-header
-op section- indirect - Build investing and financing sections
-analyze the footnotes
-list either cash paid or cash received from the specific transaction
