FAR Module 17

Question 0

What assessments can a user make from a statement of cash flows

Answer 0

An entities ability to generate positive future cash flows

an entities ability to meet its obligations and pay dividends

the reasons for differences between income and associated cash receipts and payments

the cash and non-cash aspects of an entities investing and financing transactions

Question 1

What are some of the objectives of the statement of cash flows

Answer 1

Provide information about cash receipts and cash payments

disclose information about financing and investing activities

help users make assessments

Question 2

Define cash equivalents

Answer 2

These are short term, highly liquid investments that are readily convertible to known amounts of cash that are so near their maturity (3 months or less) that they present negligible risk of changes of value

Question 3

Give examples of cash equivalents

Answer 3

Treasury Bills
commercial paper
money market funds

Question 4

What are the three classification categories on the statement of cash flows

Answer 4

Operating activities
investing activities
financing activities

Question 5

What are the two methods for presentation of operating activities

Answer 5

Indirect method

direct method

Question 6

How do the financial statements interact

Answer 6

Income statement: revenues - expenses = net income

Balance sheet: assets = liabilities + stockholders equity

Statement of cash flows: investing activities relate to assets on the balance sheet. Financing activities relate to liabilities and stockholders equity on the balance sheet. Operating activities relate to the entire income statement.

Question 7

Define net cash used

Answer 7

This is a negative number because the outflows are greater than the inflows

Question 8

Define net cash provided

Answer 8

This is a positive number because inflows are greater than outflows

Question 9

T/F

cash flow per share is similar to earnings per share

Answer 9

FALSE

There is no such thing as cash flow per share

Question 10

What disclosures are required under both the indirect and direct method of presentation of operating activities

Answer 10

1) The definition, policy, and treatment of cash equivalents. Put this in the significant accounting policies
2) significant non-cash investing and financing activities

Question 11

What disclosures are required only under the indirect method of presentation for operating activities

Answer 11

1) Interest paid

2) income taxes paid

Question 12

What disclosures are only required under the direct method of presentation of operating activities

Answer 12

A reconciliation of net income to cash from operating activities. Essentially this is doing the indirect method in the disclosure