FAR 1D Flashcards
The primary purpose of a Statement of Cash Flows is to provide relevant information about:
The cash receipts and cash disbursements of an enterprise during a period.
An example of supplemental information in the Statement of Cash Flows is
The conversion of debt to equity
What are some examples of cash inflows classified as Financing Activities?
-Sale of own stock -Proceeds from borrowing
What are some examples of cash outflows classified as Financing Activities?
-Repurchase of own stock -Paying back lenders (principal only) -Payment of dividends
What are some examples of cash outflows classified as Investing Activities?
-Purchase of long-term assets -Lending to others -Investment in debt and equity securities held to maturity and available for sale) -Purchase of productive assets (not inventory)
What are some examples of cash inflows classified as Investing Activities?
-Sale of long-term assets -Collection of loan principal -Disposal of held to maturity (HTM) and available for sale (AFS) debt and equity securities -Sale of productive assets (not inventory)
Which of the following should be disclosed in a summary of significant accounting policies? I. Management’s intention to maintain or vary the dividend payout ratio. II. Criteria for determining which investments are treated as cash equivalents. III. Composition of the sales order backlog by segment.
II. Criteria for determining which investments are treated as cash equivalents. Only II is an accounting policy. Accounting policies include the choice of accounting methods made by the firm, the principles and methods specific to an industry, and any unusual or innovative applications of GAAP.
Where in its financial statements should a company disclose information about its concentration of credit risks?
The notes to the financial statements.
Some examples of what the summary of significant accounting policies should disclose are
-Basis of profit recognition on long-term construction contracts -Criteria for determining which investments are treated as cash equivalents
Rate of return on assets ratio
net income/average total assets
Successful use of leverage is evidenced by a
Rate of return on investment greater than the cost of debt.
Debt-to-equity ratio
Total liabilities/Total Equity
Book value per share
total owners’ equity/number of shares outstanding
