F7: Statement of Cash Flows

Question 1

Purpose of the Statement of Cash Flows:

Answer 1

• To provide info about the sources of cash and uses of cash and cash equivalents
• To know why cash has changed

Question 2

3 types of cash flows on the statement:

Answer 2

1- Operating Cash Flows
2- Investing Cash Flows
3- Financing Cash Flows

Question 3

Operating Cash Flows

Answer 3

• Cash receipts & disbursements from current assets and current liabilities
• Excluding notes payable and current portion of LT debt–those are included in financing cash flows

Question 4

Investing Cash Flows

Answer 4

-Cash receipts & disbursements from noncurrent assets

Question 5

Financing Cash Flows

Answer 5

• Cash receipts & disbursements from debt & equity

- Debt includes noncurrent liabilities

Question 6

What is NOT disclosed under US GAAP?

Answer 6

Cash flow amounts per share

Question 7

What is one more item that is presented on the statement of cash flows?

Answer 7

-Information about material noncash events

Question 8

The statement of cash flows reconciles what?

Answer 8

• The change in cash for the period

- (the change in cash from the beginning balance on the balance sheet to the ending balance on the balance sheet)

Question 9

Cash equivalents definition

Answer 9

Liquid investments 3 months or less

Question 10

Bank overdrafts treatment: GAAP vs IFRS

Answer 10

GAAP- excludes from cash; classified as financing cash flows

IFRS- cash may include

Question 11

Summarized Statement Format

Answer 11

Net cash- operating activities
\+ Net cash- investing activities
\+ Net cash- financing activities
= Net increase (decrease) in cash
\+ Cash & equivalents at beginning of year
= Cash & equivalents at end of year

Question 12

2 Ways to prepare Statement of Cash Flows

Answer 12

1- Direct method

2- Indirect method

Question 13

Both GAAP & IFRS encourage the use of which method?

Answer 13

Direct

Question 14

What is the most-commonly used method?

Answer 14

Indirect

Question 15

What sections are the same regardless of method used?

Answer 15

• Investing

- Financing

Question 16

What is the only section affected when deciding between direct or indirect method?

Answer 16

-Operating

Question 17

Direct Method definition

Answer 17

Major classes of cash receipts and disbursements are presented in their gross amounts and totaled to arrive at “net cash flow” provided by operating activities

Question 18

What is required if using Direct Method by US GAAP?

Answer 18

A reconciliation of net income to net cash flows from operating activities required in a separate schedule

Question 19

Is this extra direct method requirement required under IFRS?

Answer 19

No

Question 20

Assets have a _______ relationship with cash

Answer 20

Inverse

• If assets up, you bought, so cash outflow
• If assets down, you sold, so cash inflow

Question 21

Debt & equity have a _______ relationship with cash

Answer 21

Direct

• If liabilities up, you’re borrowing, so cash inflow
• If liabilities down, you’re paying, so cash outflow

Question 22

10 Categories included under Direct Method

Answer 22

(1-5 are inflows; 6-10 are outflows)
1- Cash received from customers
2- Interest received
3- Dividends received
4- Other operating cash receipts (settlements, etc)
5- Cash received from sale of trading securities
6- Cash paid to suppliers and employees
7- Interest paid
8- Income taxes paid
9- Cash paid to acquire trading securities
10- Other operating payments (rent, insurance, utilities)

Question 23

Formula for Cash Received from Customers

Answer 23

Revenues
+- Change in AR
+- Change in Unearned Revenue
= Cash received from customers

Question 24

Formula for Cash Paid to Suppliers

Answer 24

COGS
+- Change in Inventory
+- Change in AP
= Cash Paid to Suppliers

Question 25

Formula for Cash Paid to Employees

Answer 25

Salaries and Wages Expense
+- Change in Wages Payable
= Cash Paid to Employees

Question 26

How to use Indirect Method

Answer 26

Net income is adjusted to arrive at net cash flows from operating activities

Question 27

What is additionally required when using this method?

Answer 27

Supplemental disclosure of cash paid for interest and income taxes

Question 28

Indirect Method: Formula for finding cash flow from core business

Answer 28

NI per IS
\+ Depreciation and amortization of bond discount
\+ "Losses"
- "Gains" and amortization of bond premium
- Equity earnings
\+- Change in Operating assets
\+- Change in Operating liabilities
= Cash Flow generated from core business

Question 29

For the exam: easy way to remember 85% of the adjustments made to the operating activities section under the indirect method:

Answer 29

“CLAD”

• Current assets & liabilities
• Losses & gains
• Amortization and depreciation
• Deferred items

Question 30

Investing activities have a _______ relationship with cash

Answer 30

Inverse

• If investing up, we’re buying, so cash outflow
• If investing down, we’re selling, so cash inflow

Question 31

Financing activities have a _______ relationship with cash

Answer 31

Direct

• If financing up, cash inflow
• If financing down, cash outflow

Question 32

Noncash Investing and Financing Activities- how to present

Answer 32

Should be provided separately in a supplemental disclosure

Question 33

Examples of noncash investing and financing activities

Answer 33

• Purchase of fixed asset with issuance of stock
• Conversion of bonds to equity
• Acquiring assets through a capital lease agreement
• Exchange of one noncash asset of another

Question 34

Thing to remember about IFRS reporting requirements

Answer 34

IFRS allows more flexibility, whereas GAAP rules are very rigid

Question 35

Interest received: GAAP vs IFRS

Answer 35

GAAP: CFO
IFRS: CFO or CFI

Question 36

Interest paid: GAAP vs IFRS

Answer 36

GAAP: CFO
IFRS: CFO or CFF

Question 37

Dividends received: GAAP vs IFRS

Answer 37

GAAP: CFO
IFRS: CFO or CFI

Question 38

Dividends paid: GAAP vs IFRS

Answer 38

GAAP: CFF
IFRS: CFO or CFF

Question 39

Taxes paid: GAAP vs IFRS

Answer 39

GAAP: CFO
IFRS: CFO or CFI or CFF