Chapter 7 Section 3: Statement of Cash Flows

Question 1

What are the three sections, and what do they include?

Answer 1

Operating: transactions on I/S and current items
Investing: noncurrent assets
Financing: debt and equity

Question 2

Are bank overdrafts included in cash and cash equivalents under GAAP and IFRS?

Answer 2

GAAP: no
IFRS: yes

Question 3

What are the two methods for the statement of cash flows?
Which is recommended?
Which is usually used?

Answer 3

Direct and indirect
Direct is recommended
Indirect is usually used

Question 4

How does direct show operating?

Answer 4

Cash received from customers
Interest received
Dividends received
Other operating cash receipts
Cash received from selling trading securities
- Cash paid to suppliers
- Cash paid to employees
- Interest paid
- Income taxes paid
- Cash paid to buy trading securities
- Other operating cash payments

Question 5

How do you calculate cash received from customers?

Answer 5

Revenues
- increase in a/r
\+ decrease in a/r
\+ increase in unearned revenue
- decrease in unearned revenue

Question 6

How do you calculate cash paid to suppliers?

Answer 6

COGS
\+ increase in inv
- decrease in inv
- increase in a/p
\+ decrease in a/p

Question 7

How do you calculate cash paid to employees?

Answer 7

salaries and wages expense
- increase in wages payable
+ decrease in wages payable

Question 8

How do you calculate other operating cash payments?

Answer 8

Other operating expenses
- decrease in prepaids
\+ increase in prepaids
\+ decrease in accrued liabilities
\+ increase in accrued liabilities

Question 9

How does indirect report operating?

Answer 9

Net income
+ depreciation and amort of bond discount
+ loss
- gain
-amortization of bond premium
- equity earnings
changes in assets (up = buy, outflow, down = sell, inflow)
change in lias (up = borrow, inflow, down = pay, outflow)

Question 10

Under both methods, how are investing activities reported?

Answer 10

If noncurrent assets go up, it’s buying and an outflow

If noncurrent assets go down, it’s selling and an inflow

Question 11

Under both methods, how are financing activities reported?

Answer 11

Change in interest-bearing debt
Up = borrow, inflow
Down = repay, outflow

Question 12

What do you do with material, noncash financing and investing?

Answer 12

They need to be provided separately in a supplemental disclosure

Question 13

Which activities does IFRS report differently?

Answer 13

Interest received
     GAAP = O
     IFRS = O or I
Interest paid
     GAAP = O
     IFRS = O or F
Dividends received
     GAAP = O
     IFRS = O or I
Dividends paid 
     GAAP = F
     IFRS = O or F
Taxes paid
     GAAP = O
     IFRS = O, I, or F

Question 14

What additional disclosures are required for the indirect method?

Answer 14

Interest and income taxes paid

Question 15

What additional step is required for the direct method?

Answer 15

A reconciliation of net income to net cash provided by operating activities