F7 - Statement of Cash Flows

Question 1

What are the three sections of the statement of cash flows? What cash flows are included in each section?

Answer 1

• Operating activities - cash flows from income statement transactions and current assets/liabilities
• Investing activities - cash flows from noncurrent assets
• Financing activities - cash flows from debt and equity

Question 2

Define cash equivalents.

Answer 2

• Cash equivalents*: Cash equivalents are highly liquid investments with maturities of three months or less that are readily convertible into cash with insignificant risk of changes in value.
• Note*: “Maturities of three months or less” is of original instrument or from purchase date of intstrument.

Question 3

Name the two methods of presentatino of cash flows from operating activities. Which method is preferred?

Answer 3

• Direct and indirect methods
• Direct method is preferred

Question 4

If using the direct method of presenting cash flows from operating activities, what additional item needs to be included in the statement of cash flows under U.S. GAAP?

Answer 4

A reconciliation of net income to net cash provided by operations needs to be provided as a supplemental schedule. (Not required under IFRS.)

Question 5

Name the common adjustments made to cash flows from operating activities using the indirect method.

CLAD

Answer 5

Current assets and liabilities

Losses and gains

Amortization and depreciation

Deferred items

Question 6

Name the most common classes of cash receipts and disbursements included in cash flows from operating activities using the direct method.

Answer 6

• Cash received from customers
• Cash paid to suppliers and employees
• Interest received and paid
• Dividends received
• Purchases and sales of trading securitites, if appropriate, based on the nature and purpose for which the securities were acquired
• Income taxes paid