Module 23.1 Cash Flow Introduction

Question 1

What are the three main things a cash flow statement provides?

Answer 1

1) Information about a company’s cash
2) Information about a company’s investing, financing activities
3) an understanding of the impact of accrual accounting events

Question 2

Under US GAAP are dividends received and dividends paid both financing activities? Is it the same under IFRS?

Answer 2

No, dividends received is an operating cash flow.

Not the same under IFRS, IFRS allows more flexibility and dividends can be either operating or investing.

Question 3

Under GAAP and IFRS how are income taxes reflected in the cash flow statement?

Answer 3

GAAP - all income taxes paid are reported as operating activities

IFRS - flexibility, income taxes are operating expenses unless the expense is associated with a financing or investing transaction.

Question 4

Is the indirect and direct method both permitted under GAAP and IFRS? Does CFIA and CFFA change in either method?

Answer 4

Both permit indirect and direct, CFFA and CFIA is essentially the same in both.

Question 5

What is the direct method of cash flow?

Answer 5

converts an accrual based income statement to a cash based income statement. Receipts and payments.

Question 6

What is the indirect method of cash flow?

Answer 6

Converted the balance sheet accounts to cash flow by taking the change period over period.

Question 7

What is the disclosure GAAP requires if a firm decides to use the direct method?

Answer 7

must also disclose the adjustments necessary to reconcile net income to cash flow from operating activities.

Question 8

What is the disclosure IFRS requires if a firm decides to use either the direct or indirect method?

Answer 8

payments for interest and taxes must be disclosed separately in the cash flow statement.