Chapter 4 - Statement of Cash Flows

Question 1

What insights do we want to get if we look at the CFS?

Answer 1

• insights about cash movements over time

Question 2

Why is cash so important?

1.
2.
3.
4.

Answer 2

• people normally only accept cash in settlement of their claims
• business wants to employ people or buy something from a seller -> need to pay cash to them
• vital for business to survive, e.g. liquidity
• banks dont lend money easily to businesses with low cash flows

Question 3

The Cash flow statement is mandatory part of…

Answer 3

• consolidated financial statement of HGB (when it comes to publicily traded companies)

Question 4

Is it a good idea to hoard cash in economic difficulties?

Answer 4

• no, because it deevaluated itself (getting eaten up by inflation)

Question 5

1. Straight line method is chosen when….
2. Reducing balance method is chosen when….

Answer 5

1. economic beneifts consumed evenly over time | usually chosen
2. economic benefits consumed decline over time

Question 6

the carrying amount represents…

Answer 6

the unexpired part of an assets cost rather than its current market value

Question 7

Characteristics of cash equivalents

1.
2.
3.

Answer 7

1. investments short term? (3 months max)
2. readily convertible to cash? (highly liquid)
3. insignificant risk of changes in value?