chapter 13 Flashcards
what is the indirect method?
a preparation of operations activities section that provides a summary of conversion to net cash provided (used) by operating
what does the statement of cashflows help users with?
helps users asses a companies ability to generate cash from its operating activities and how the company received and used other cash flows regarding investing and financing activities
how can the statement of cash flows help determine future cash flows?
investing and financing transactions during the period, and effect upon capital structure and making comparisons with other companies
what are the 5 differences between net income and current cash for the period?
timing of cash flows
timing of inventory sales
depreciation/ amortization
unrealized gains or losses
income statement only records interest expense fees but not principle payments
what can cash include?
cash equivalents
what are cash equivalents?
short-term, highly liquid investments that have insignificant risk and are readily converted to cash within a short period of time (3 months)
what are the 3 categories that cash receipts and payments are classified into?
operating activities
investing activities
financing activities
what are operating activities?
activities related to a companies principal income-producing activities, they relate to cash effects of transactions that create revenues and expenses that enter into determination of net income
what do operating activities measure?
the change in non cash current assets and current liabilities
what are investing activities?
activities related to the acquisition and disposal of non-current assets, lending money and collecting loans
what do investing activities measure?
generally includes changes in non-current asset items such as long lived investments, property, plant and equipment
what is goodwill?
the amount that someone pays over the fair market value when purchasing a company
can you sell a fraction of goodwill?
no, you can only sell the whole amount and it is found at the sale of the company
what are financing activities?
activities that are related to changes in a companies debt and equity
what are some examples of financing activities?
obtaining cash from issuing debt and repaying the amounts borrowed
obtaining cash from selling common and preferred shares and paying dividends
generally includes non-current liabilities and shareholder equity items
what are significant non cash activities?
if it does not affect cash it is not reported in the statement of cash flows and are reported in a separate not to the financial statements
what are 4 examples of significant non cash activities?
issue of shares to purchase assets or to reduce liabilities
conversion of debt into equity
exchange of property, plant and equipment
the acquisition of assets by directly assuming related liabilities
what are the 4 steps in the preparation of the statement of cash flows?
step 1: prepare operating activities section
step 2: prepare investing activities
step 3: prepare financing activities section
step 4: complete the statement of cash flows
