Lecture 9 - Cash Flow Statements

Question 1

What are the 3 categories of Cash Flows?

Answer 1

1) Operating
2) Investing
3) Financing

Question 2

What is included in OPERATING cash flows?

Answer 2

Principal revenue and producing activities
And
Other non-financial and non-investing activities

Question 3

What is included in INVESTING cash flows?

Answer 3

Acquisition and disposal of long term assets and other investments not included in operating or financial cash flows

Question 4

What is included in FINANCING cash flows?

Answer 4

Activities resulting in changes in size and composition of entity

Question 5

What are two methods for preparing the Cash flow statement?

Answer 5

1) The direct method -> presents major categories of cash in/outflows
2) Indirect method -> adjusts the accrual basis operating profit to cash basis

Question 6

What are the inflows and outflows of cash for Operating activities?

Answer 6

Inflows: Proceeds from selling goods/services, dividend + rent revenue, interest revenue
Outflow: Payments to suppliers + Employees, income tax etc.

Question 7

What are the inflows and outflows of cash for Investing activities?

Answer 7

Inflows: Selling Investments
Outflows: Buying Investments

Question 8

What are the inflows and outflows of cash for Financing activities?

Answer 8

Inflows: Issuing Shares and Borrowing
Outflows: Share buybacks, repayment of borrowing, payment of dividends

Question 9

How is net cash from operating activities determined using the direct method? (6 elements)

Answer 9

By adjusting sales, COGs and other operating items from the income statement for non-cash and non-operating items.
Net Cash from Operating Activities
EQUALS:
1) Cash Receipts from Customers 
PLUS
2) Interest ReceiVed 
PLUS
3) Dividends received 
MINUS
4) Payments to Suppliers and Employees
Minus
5) Interest Paid
Minus
6) Tax paid

Question 10

How are Cash Receipts From Customers calculated? (4 elements don’t forget +/-)

Answer 10

Cash Receipts from Customers
EQUALS:
1) Change in Accounts Receivable (beg - end)
MINUS
2) Change in Unearned Revenue (beg - end)
MINUS
3) Bad Debts Written off
MINUS
4) Discounts Alowed

Question 11

How are Cash payments to suppliers for inventory purchases determined? (step one in calculating payments to suppliers and employees) (3 elements plus specify formula for purchases)

Answer 11

CPtSfI = Purchases + change in accounts payable - discount

Such that Purchases = COGS - Change in Inventory

Question 12

How are Cash payments for employees and other expenses calculated? (3 elements)

Answer 12

CPfEaOE = Change in accrued Expenses - Change in prepayment - non-cash expenses

Question 13

What is the formula for Net Cash from investing Activities? (4 elements)

Answer 13

NCfIA = proceeds from sales of PPE - payments for PPE + proceeds from sale of investments - payments for investments

Question 14

What is the Formula for net cash from financing activities? (5 elements)

Answer 14

NCfFA = Proceeds from issuing shares (ordinary and pref) + proceeds from borrowing - repayments from borrowings - dividends paid - payments for share buybacks

Question 15

How is Net cash from Operating Activities calculated using the indirect method? (6 elements)

Answer 15

NCfOA = Net profit after tax - non-cash revenues + non cash expenses + loss (or - gain) on sale of non-current assets - change in current assets + change in current liabilities

Question 16

For the final exam what are interest payments considered?

Answer 16

Operating Cash Flows

Indirect method: Adjust for interest payable acct

Question 17

For the final exam what are dividend payments considered?

Answer 17

Financing Cash Flows

Indirect Method: Do NOT adjust for div payable