part 1.statement of cash flow

Question 1

cash flows 3 categories

Answer 1

1. operating: items that flow through the income statement
2. investing: long term assets accounts
3. financing: long term liabilities and stockholder equity accounts

Question 2

cash flows: non-cash expenses

Answer 2

any non-cash expenses on the income statement needs to be added back to net income to derive cash flows from operations:
exp: depreciation, amortization and losses

any non-cash gains on the income statement need to be substracted from net income to derive cash flows from operations:
exp: gains

Question 3

cash collected from customers

Answer 3

sales + decrease in a/r
or
sales - increase in a/r

Question 4

cash paid for operating expenses

Answer 4

operating expenses (excluding depreciation expense) + increase in prepaid expenses - increase in wages payables _ decrease in accrued expenses

or do opposite

Question 5

cash paid to suppliers

Answer 5

cost of purchases= cogs + increase in inventory
then
cost of purchases + decrease in a/p

or do opposite

Question 6

depreciation

Answer 6

is a deferral account

Question 7

FOB Shipping

Answer 7

tittle passes at the time goods are shipped

Question 8

treasury stock

Answer 8

is a contra equity account

Question 9

primary characteristics

Answer 9

relevance

faithful representation

Question 10

relevance

Answer 10

predictive value
confirmatory value
materiality

Question 11

faithful representation

Answer 11

completeness
neutral
free from error

Question 12

enhancing characteristics

Answer 12

comparability
verifiability
timeliness
understandability

Question 13

assumptions

Answer 13

entity
going concern
unit of measure
time period

Question 14

principles

Answer 14

historical cost
revenue recognition
matching
full disclosure

Question 15

constraints

Answer 15

materiality

cost benefit

Question 16

amortized cost

Answer 16

the historical cost les accumulated depreciation

Question 17

net present value

Answer 17

the value determined from discounting the expected future cash flows

Question 18

equity

Answer 18

residual interest in the firm’s assets. equity is mainly comprised of past investor contributions and retained earnings

Question 19

comprehensive income

Answer 19

accounting income plus certain holding gains and losses and other items. it includes all changes in equity other than investments by owners and distributions to owners

Question 20

gains

Answer 20

increases in equity or net assets from peripheral or incidental transactions

Question 21

losses

Answer 21

decreases in equity or net assets from peripheral or incidental transactions

Question 22

two approaches to computing present value

Answer 22

traditional approach: discounted cash flows. it uses the interest rate to capture all the uncertainties

the expected cash flow approach: uses a risk free rate as the discount rate