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Management Acctg > Chapter 6 > Flashcards

Chapter 6 Flashcards

1
Q

Provides information about cash inflows & outflows during an accounting period

A

Statement of Cash Flow (PAS 7)

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2
Q

The net change in cash from the operating, investing & financing activities in a manner that reconciles the beginning and ending cash balances.

A

Statement of Cash flows

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3
Q

Valuable analytical tool for managers

A

Statement of Cash flows

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4
Q

Primary purpose of cash flow statement

A

provide relevant information about a company’s cash receipt & cash payments during an accounting period.

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5
Q

Consist of short-term, highly liquid investment (Treasury bills or money market funds)

A

Cash Equivalents

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6
Q

Key indicator of the extent to which the operation of the enterprise have generated sufficient cash flow

A

Operating activities

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7
Q

Include delivering or providing goods for sale and providing services

A

Operating activities

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8
Q

-Sales of goods
-Revenue from services
-Return on interest earning assets
-Returns on equity securities
-Tax refunds

A

Inflows from Operating Activities

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9
Q

-Payment for purchases of inventories
-Payments for operating expense
-Payment for purchases from supplies
-Payments for lenders and taxes

A

Outflows from Operating Activities

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10
Q

represent the extent to which expenditures have been made for resources intended to generate future income and cash flow

A

Investing activities

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11
Q

Include acquiring and selling

A

Investing activities

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12
Q

-Sales of long-lived assets (PPE)
-Sales of debt or equity
-Collections of loan to others

A

Inflows from Investing activities

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13
Q

-Acquisition of long-lived assets (PPE)
-Purchase of debt or equity
-Loan to others

A

Outflows from Investing activities

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14
Q

Useful in predicting claims on future cash flows by providers of capital to the enterprise

A

Financing activities

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15
Q

Include borrowing from creditors and repaying the principal

A

Financing activities

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16
Q

-Proceeds from borrowing
-Proceeds from issuing firm equity securities

A

Inflows from Financing activities

17
Q

-Repayment of debt principal
-Repurchase of firm own share
-Payment of dividends

A

Outflows from Financing activities

18
Q

Entity shall report cash flow from operating activities using either

A
  1. Direct Method, whereby gross cash receipt & gross cash payments are disclosed
  2. Indirect Method, whereby profit or loss is adjusted for the effects of transaction of a non-cash nature.
19
Q

Enterprises are encouraged to report cash flow from operating activities using

A

Direct method

20
Q

Net cash flow from operating activities is determined by adjusting the net profit or loss for the effects of changes during the period in inventories, non-cash items and all other items for which cash effects are investing or financing cash flow

A

Indirect method

21
Q

Showing revenue and expense disclosed in the income statement and the changes during the period inventories and operating receivables and payables

A

Indirect Method

22
Q

Cash flow arising from transactions in a foreign currency should be recorded

A

entity’s functional currency by applying the foreign currency amount

23
Q

Cash flow from interest and dividends received and paid should

A

disclosed separately

24
Q

Cash flows arising from taxes on income shall be

A

separately disclosed and classified as cash flow from operating activities unless they can be specifically identified

25
Q

Two most commonly used methods of analysis to prepare statement of cash flow

A
  1. Visual inspection method
  2. Worksheet method (T-accounts)
26
Q

used when financial statements are not complex and when relationship between the changes in account balance can be easily observed analyzed

A

Visual Inspection method

27
Q

commonly used in practice

A

Worksheet method of Analysis

28
Q

cash available to pay the firms shareholders and debt holders after the firm has made the necessary working capital investment

A

Free cash flows

29
Q

Formula of Free cash flow

A

FCF = Operating cash flow - Investment in operating capital

where:
1. Operating cash flow = Net Income + (Depreciation + Non-cash charges (amortization & depletion))

  1. Investment in operating asset = Funds used or earmarked for eventual equipment replacement to sustain firm operation, current asset and spontaneous current liabilities
30
Q

Firm may distribute funds to its investor

A

Positive free cash flow

31
Q

firms operations produced no cash available for investor

A

Zero free cash flow

32
Q

result of negative operating cash flow generally indicates that firm is experiencing operating and managerial problems

A

Negative free cash flow

33
Q

Formula for Investment in Operating Capital

A

IOC = Gross fixed asset + Net operating working capital

Management Acctg (6 decks)

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