Chapter 12 + Exam review Flashcards
What is the purpose of statement of cash flows
To show the change (increase or decrease) in cash from beginning of year to end of year
What are the three categories for cash flows
- Operations
- investing
- Financing
What are inflows of cash
cash receipts (+)
cash payment (-)
What are operating activities
actions that determine net income transactions
Examples of operating activities
- sale of inventory
- paying expenses
- purchase of inventory/supplies
- payment of interest expense
What are investing activities
use of internal money to make money
Examples of investing activities
- buying and selling LT assets
- purchase & sale of ST assets
- lending and collecting a note
What are financing activities
Used of external money
Transactions that effect both ST & LT notes payable & all LT liabilities and equity
Examples of financing activities
All borrowed money
ST< notes payable
Bonds payable
issue of stock
Paying of cash dividends
What are the two methods for the operating section?
- Direct
- Indirect
What is the direct method
Used for investing & financing
Listed out every single transaction during that year
What is the indirect method
Starts with net income & either banks or adds back any non-cash transactions.
What is the first thing you do when creating the statement of cash flows
The change column
What is in the change column of the statement?
Current assets and liabilities
What do you do with Current Assets?
Increase in CA –> Subtract
What do you do with Current liabilities
It stays the same
Ratio: Cash flows on total assets
Cash flow operating activities / Average total assets
How do you get average total assets
Beg. total assets + end total assets / 2
For income statement not affecting cash, what are the accounts and do you add or subtract them?
Possible accounts
1. Depreciation expense (+)
2. Gain on sale (-)
3. Loss on sale (+)
4. Bad debit expense (+)
Ratio: Debit to equity
Total liabilities / total equity
Earnings per share (EPS)
(Net income - Preferred dividends) / weighted average common shares outstanding
