Chapter 21 - Statement Of Cash Flows Flashcards
Statement of Cash Flows
A financial statement showing a company’s inflows and outflows of cash for a given period. The statement shows
OPERATING, INVESTING, and FINANCING activities.
Cash Equivalents
Short-term, highly liquid investments that are readily convertible into known amounts of cash and have an original maturity that is 3 months or less.
Operating Activities
Activities related to the generation of revenues in the ordinary course of business, including all activities of an enterprise that are not investing or financing activities.
Investing Activities
Making loans and collecting principal, acquiring and disposing of investments in debt and equity instruments of other entities, and acquiring and disposing of property, plant, and equipment, intangibles, or other assets held or used for production or the generation of revenues.
Financing Activites
Contributions by owners, distributions to owners, and borrowing and repaying principal amounts in transactions with creditors.
Cash Flows from Operating Activities
The amount of cash generated or used by the entity by engaging in its normal ongoing operating activities, computed under either the direct method or the indirect method, either of which will provide the same result.
Direct Method
Direct Cash Approach
The presentation of cash flows from operating activities that involves converting revenues, cost of revenues, and ordinary operating expenses from the accrual to the cash basis to derive the amount of cash generated or used by operating activities and ignoring noncash items and gains and losses that re not the result of operating activities.
Indirect Method
Reconciliation Approach
The presentation of cash flows from operating activities that involves reconciling net income to cash flows from operating activities by adjusting net income for noncash revenues and expenses, such as depreciation, no operating gains and losses,such as gain or loss on sale of equipment, and increases or decreases in accrual accounts, such as accounts receivable and payable.
Examples of
OPERATING ACTIVITIES
Collections on sales from customers
Cash payments for COGS and SGA
Interest received and paid
Dividends received
Acquisition and disposal of trading securities
Payments for income taxes
All other receipts/disbursement so that do not stem from transactions defined as Investing or Financing Activities.
Examples Of
INVESTING ACTIVITIES
Principle collections or Loans made by the entity (interest & dividends received are operating)
Acquisition or disposal of available-for-sale or held-to-maturity INVESTMENTS (Not trading)
Acquisition or disposal of PROPERTY, PLANT, & EQUIPMENT and INTANGIBLES
Examples of
FINANCING ACTIVITIES
Proceeds from issuing or payments for retiring Bonds (interest is OPERATING)
Issuance or Reacquisition of stock or Treasury stock
Borrowing or repaying a loan
Dividends paid to shareholders (dividends received is OPERATING)
