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Comm 217 > chapter 5: inhale cash flows > Flashcards

chapter 5: inhale cash flows Flashcards

1
Q

what does the statement of cash flow explain?

A

how the cash balance at the beginning of the period changed to another cash balance at the end of the period

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2
Q

what are cash equivalents?

A

short term highly liquid investments

readily convertible to known amounts of cash

less than three months to their maturity

subject to insignificant risks fo changes in value

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3
Q

cash flows from operating activities

A

cash inflows and outflows directly related to earnings from normal operations

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4
Q

what are the two alternatives to represent the operating activities section?

A

the direct method

the indirect method

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5
Q

what is the direct method

A

reports components of cash flows from operating activities listed as gross receipts and gross payments

more expensive to implement that the indirect method

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6
Q

indirect method

A

presents operating activities section of the statement of cash flow starting with net earnings

eliminates non cash items from revenues and expenses

will arrive to cash inflow (outflow) from the operating activities

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7
Q

does the indirect and direct method make a difference to find the total amount of cash inflows or outflows from operating activities? or does it remain the same?

A

the cash outflow or inflow result is the same with both methods

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8
Q

what are cash flows from investing activites?

A

cash inflows and outflows related to acquisition or sale of long lived productive assets and investments in securities of other companies

the difference between inflows and outflows is called net cash inflows (outflows) from operating activities

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9
Q

what are cash flows from financing activites?

A

cash inflows and outflows related to owners and creditors that finance enterprise and operations

difference between inflow and outflow is Calle ent cash inflow(outflow) form financing activities

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10
Q

what is the net increase or decrease in cash

A

the combination of outflows and inflows of cash from operational, financing and investing activities

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11
Q

what type of data do you need to prepare the statement if cash flow and why?

A

comparative statement of financial position to compute cash flows from all activities

complete statement of earnings to identify cash flows form operating activities

additional details about selected accounts because often times net change In account balance does not reveal underlying nature of cash flows

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12
Q

true or false

any transaction that results in a change in cash must be accompanied by a shaven in liabilities, SE, or non-cash assets?

A

true

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13
Q

when theres an increase in cash, what does in mean for either the liabilities, SE, and non cash assets

A

liabilities should increase, SE should increase, and non cash assets should decrease

or

liabilities should decrease, SE should decrease, and non cash assets should increase

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14
Q

in the indirect method for cash flows regarding operating activities, what should you record to cash inflow if current non-cash assets decrease or current non-cash liabilities increase?

A

cash inflow increases

ex: when accounts receivable decrease because cash is collected, more cash is in the back account

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15
Q

in the indirect method for cash flows regarding operating activities, what should you record to cash inflow if current non-cash assets increase or current non-cash liabilities decrease?

A

cash inflow decreases

ex: AR are more than the cash collected because revenues are more than cash collected

must substract the non-cash current asset from net earnings

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16
Q

if inventories decrease, does cash flow increase or decrease?

why?

A

increase because the cash collected from the sale of inventory is more than the costs of selling

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17
Q

if a prepaid expense is a used up (decrease in a prepaid expense), what happens to the cash inflow?

A

the cash inflow increases

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18
Q

if accounts payable decrease, what happens to cash inflow?

A

it decreases

you paid cash to suppliers

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19
Q

what are the two types of accounts mostly affected when recording cash flows from investing activities?

A

purchase and sale of property, land, land, equipment or intangibles assets (trademarks and patents) by cash

    these are non current assets

purchase or sale of short or long-term investments by cash

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20
Q

what type of securities (such as government securities) are the equivalent of cash?

A

securities of maturities of three months or less

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21
Q

securities with maturities of more than three months are considered what?

A

investments

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22
Q

how do you calculate the cash flows with property, plant, and equipment (Investing activities)

A

you look at the change (bought and sold), then take off depreciation (operating activities)

the difference will be the cash flow

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23
Q

what is the quality of earnings ratio

A

you try to calculate how many dollars were generated from operating activities per dollar of retained earnings

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24
Q

what is the capital expenditure ratio ?

A

you calculate how many many dollars were generated from operating activities per dollar spent PPE, intangibles, and investments

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25
Q

what does a higher ratio of capital expenditure mean?

A

less need for financing for current and future operations

allows strategic acquisition, avoids debt, reduces risks of bankruptcy

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26
Q

what does a higher ratio of capital expenditure mean?

A

greater ability to finance operations from cash flows

less likely that company using aggressive revenues recognition strategies to increase net earnings

27
Q

what is the free cash flow measurement and how do you calculate it?

A

a measure of firm’s ability to pursue long term investment opportunities

cash flows from operating activities - dividends -capital expenditures

28
Q

what are capital expenditures

A

PPE

intangibles

investments

29
Q

what are the changes presented in cash flows from financing activities

A

notes payable to financial institutions (short term debt) and portions of long term debt

non current liabilities

shareholders’ equity

30
Q

what are non cash investing and financing activities?

A

transactions that do not have direct cash flow effects

reported as supplement to the statement of cash flows in narrative or shcedule form

31
Q

can gains or losses of a long lived asset be recorded as operating activity, financing activity, or investment activity depending on the situation? indirect method

A

yeeee

32
Q

where do you record an adjustment made to gain or losses made from the sale of a long lived asset?

why?

indirect method

A

on the operating activities section

to avoid double counting the gain or loss

33
Q

state wether the following belongs in cash flow from operating activities, cash flow from investing activities, or cash flow form financing activities:

purchase of short term investments

A

cash flow from investing activities

34
Q

state wether the following belongs in cash flow from operating activities, cash flow from investing activities, or cash flow form financing activities:

net earnings

A

cash flow from operating activities

35
Q

state wether the following belongs in cash flow from operating activities, cash flow from investing activities, or cash flow form financing activities:

change in accounts receivable

A

cash flow from operating activities

36
Q

state wether the following belongs in cash flow from operating activities, cash flow from investing activities, or cash flow form financing activities:

additions to property, plant, and equipment

A

cash flow from investing activities

37
Q

state wether the following belongs in cash flow from operating activities, cash flow from investing activities, or cash flow form financing activities:

change in prepayments and other current assets

A

cash flow from operating activities

38
Q

state wether the following belongs in cash flow from operating activities, cash flow from investing activities, or cash flow form financing activities:

change in inventories

A

cash flow from operating activities

39
Q

state wether the following belongs in cash flow from operating activities, cash flow from investing activities, or cash flow form financing activities:

change in accrued liabilities

A

cash flow from operating activities

40
Q

state wether the following belongs in cash flow from operating activities, cash flow from investing activities, or cash flow form financing activities:

depreciation and amortizationn

A

cash flow from operating activities

41
Q

state wether the following belongs in cash flow from operating activities, cash flow from investing activities, or cash flow form financing activities:

issuance of shares

A

cash flow form financing activities

42
Q

state wether the following belongs in cash flow from operating activities, cash flow from investing activities, or cash flow form financing activities:

changes in accounts payable

A

cash flow from operating activities

43
Q

indicate if the following item would be added, subtracted or non included in the reconciliation of net earnings to cash flow form operations (indirect method)

increase in inventories

A

decrease

44
Q

indicate if the following item would be added, subtracted or non included in the reconciliation of net earnings to cash flow form operations (indirect method)

repayment of loans and borrowings

A

no effect

45
Q

indicate if the following item would be added, subtracted or non included in the reconciliation of net earnings to cash flow form operations (indirect method)

depreciation expense

A

increase

46
Q

indicate if the following item would be added, subtracted or non included in the reconciliation of net earnings to cash flow form operations (indirect method)

decrease in accounts receivable

A

increase

47
Q

indicate if the following item would be added, subtracted or non included in the reconciliation of net earnings to cash flow form operations (indirect method)

increase in accounts and other payables

A

increase

48
Q

indicate if the following item would be added, subtracted or non included in the reconciliation of net earnings to cash flow form operations (indirect method)

increase in prepaid expenses

A

decrease

49
Q

what do cash inflows from operating activities include?

A

cash sales

collections on Accounts receivable and notes receivable arising from sales

dividends on investments (?)

interest on loans and investments (?)

50
Q

what do cash outflows from operating activities include?

A

payments to suppliers and employees

payments for operating expenses, taxes, and interest

51
Q

what do cash inflows from investing activities include?

A

cash received from sale of operational assets

sale of investments

maturity value of bond investments

principal collections on notes receivable that are not related to operations

52
Q

what do cash outflows from investing activities include?

A

cash payments to purchase operational assets and investments, and to make loans

53
Q

what do cash inflows from financing activities include?

A

contributed capital

loans

54
Q

what do cash outflows from financing activities include?

A

payments for dividends

the purchase of the company’s own shares

principal payments on borrowing

55
Q

true or false

Interest on borrowings may also be classified as a financing activity under IFRS

A

true

56
Q

what are non-cash investing or financing activities?

give two examples

A

activities that would normally be classified as investing or financing activities, except no cash was received or paid

ex: purchase of assets by issuing shares or bonds

the repayment of loans using non-cash assets

the conversion of bonds into shares

57
Q

how are non-cash investing or financing activities reported in statement of cash flows?

A

are not reported in the statement of cash flows, because there was no cash received or cash paid

however, the activities are disclosed in a note or a separate schedule

58
Q

using the indirect method, depreciation expense and amortization are supposed to turn into a positive or negative cash flow?

A

positive cash flow

59
Q

do the depreciation and amortization accounts affect the cash flows from investing activities?

A

nah boy

60
Q

what does a capital expenditure ration of 1.57 indicate?

A

The ratio of 1.57 indicates that the cash generates from operations is more than sufficient to pay for the company’s investing activities

no finance from external sources of pre-existing cash balances

61
Q

when you use the indirect method, do you add and debut items affecting cash, items not affect cash or both?

A

items not affect cash

62
Q

what does it mean if the capital expenditure ration is negative?

A

it means that the company did not invest with cash used from operating activities but cash from shareholders and creditors (financing)

63
Q

what is the free cash flow formula?

A

cash from operating activities - dividends - capital expenditures

Comm 217 (18 decks)

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