M8- Cash Flow Statement

Question 1

What is the preferred method of cash flow

Answer 1

Direct method

Question 2

What is the direct method?

Answer 2

Direct method= cash collected - cash from opex

Question 3

Direct method- what items are not included in operating activities?

Answer 3

Net income

Depreciation

Gains and Losses

Question 4

Direct Method: What items are included as inflows for operating expenses

Answer 4

1. Cash from customers (req calculation)
2. Interest rec
3. Dividends rec
4. Sale of trading security
5. Other (insurance/law suits)

Question 5

Direct Method: Operatiooooooong activity outflows

Answer 5

1. paid to suppliers/vendors (req calc)
2. interest paid
3. income taxes paid
4. cash paid to acquire securities (Trading securities)
5. Other operating expenses (Req. calculation)

Question 6

What is the indirect method

Answer 6

Reconciliation

= NI + Deprecciation + losses - gains

Question 7

Indirect method; what is not included in the calculation of oepraitng activities

Answer 7

1. cash paid to customers
2. cash paid to vendors

Question 8

Indirect method: what is the calculation for operating activities

Answer 8

NI

+ Depreciation

+ Losses

• gains
• Amoritization of bond premiums
• Equity earnings
• (+/-) OA

+ (+/-) OL

Question 9

what are OA

Answer 9

all CA except cash and cash equivalents

Question 10

What are OL

Answer 10

all accruals except interest bearing items

Question 11

What accounts for 85% of the changes to Operating activities for indirect method

Answer 11

CLAD

Current Assets

Liabilities

Amortization/Depreciation

Deferred Items

Question 12

What is the difference between investing activities for indirect and direct

Answer 12

nothing

Question 13

what is the difference between direct and indirect financing section

Answer 13

nothing

Question 14

For investing activities describe the relationsihp between buying and selling

Answer 14

buying– cash goes down

Selling – cash goes up

Question 15

Describe ther relationsihp between issuing debt and repaying debt under financing method

Answer 15

Issuing debt — inc cash

Repay debt– decrease in cash

Question 16

What two items impact the calculation for cash from customers

Answer 16

1. AR
2. Unearned revenue

Question 17

What is the calculation for cash rec. from customers under the direct method

Answer 17

Revenues

• inc in AR

+ inc in unearned revenues

= Cash from customers

Question 18

What are the two factors that impcat cash paid to suppliers

Answer 18

1. inventory
2. AP

Question 19

What is the calculation for cash paid to suppliers under teh direct method

Answer 19

COGS

+ Inc in Inv

• Inc in AP

= Cash paid to suppliers

Question 20

What are the factors that impact cash paid to employees

Answer 20

1. salaries and wages payable

Question 21

what is the calculation for cash paid to employees under the direct method?

Answer 21

Salaries and wages expense

• inc in wages payable

= cash paid to employees

Question 22

what are the factors that impcat othre operating cash payments in the direct method?

Answer 22

1. prepaids
2. accrued liabilities

Question 23

What is the calculation for other operating cash payments for the direct method?

Answer 23

Other OpEx

+ Inc in prepaids

• Inc. in accrued liabilities

= other operating cash payments

Question 24

How are lease payments recorded in the statement of cash flows

Answer 24

1. financing- cash outflow- other principal payments

the principal payment is recorded as a financing activity