Statement of Cash Flow Flashcards
Cash Flow from Operating
Net income
Add: Decrease in receivables
Add: Depreciation expense
Minus: Increase in inventories
Minus: Decrease in payables
Minus: Gain on sale of equipment
Net cash provided by operating activities
Equipment purchased with a note payable.
The acquisition of a long-lived asset in exchange for debt is a noncash investing transaction. It is therefore classified as a noncash financing and investing activity because it affects a recognized asset and a recognized liability but not cash flows. It is disclosed outside the statement of cash flows.
Operating
If the direct method is used, a reconciliation of net income and net cash flows from operating activities is required to be provided in a separate schedule.
Trading debt securities.
Cash flows from purchases, sales, and maturities of trading debt securities are cash flows from operating activities.
reported net cash provided by operating activities should be
Acquisition of bonds is an investing activity, assuming they are not classified as trading securities. Payment of dividends is a financing activity. Amortization of a discount on bonds receivable is a noncash interest revenue. All other transactions listed are cash flows from operating activities.
Financing activities
(1) issuance of stock, (2) payment of dividends, (3) treasury stock transactions, (4) issuance of debt, (5) obtaining cash from creditors and repayment or other settlement of debt obligations, (6) the exercise of share options resulting in excess tax benefits, and (7) receiving resources that are donor-restricted to long-term use.
Depreciation expense is added to net income under the indirect method of preparing a statement of cash flows in order to
The indirect method begins with net income and then removes the effects of (1) deferrals of past operating cash receipts and payments, (2) accruals of estimated future operating cash receipts and payments, and (3) net income items not affecting operating cash flows (e.g., depreciation).
Section of the statement should Ace report the amortization of the bond discount?
The indirect method removes the effects of (1) all deferrals of past operating cash receipts and payments, (2) all accruals of estimated future operating cash receipts and payments, and (3) all items not affecting operating cash flows to arrive at the net cash flow from operating activities. Hence, the amortization of the discount on bonds payable is added to net income in the reconciliation because it represents a noncash increase in interest expense (a decrease in net income).
Financing Activities
Issuing and selling company stock
Purchasing treasury stock
Getting a loan (also making payments on a loan)
Paying dividends
Issuing bonds
Investing activities
(1) making and collecting loans; (2) acquiring and disposing of debt or equity instruments; and (3) acquiring and disposing of property, plant, and equipment and other productive assets (but not materials in inventory) held for or used in the production of goods and services. The sale of available-for-sale debt securities provided cash .
Financing Cash outflow
Cash outflows from financing activities include cash dividends paid to shareholders. Cash outflows from operating activities include the litigation settlement paid. Stock dividends paid to shareholders, destruction of obsolete inventory, and acquisition of assets through a finance lease are non-cash activities.
Operating Cash outflow
Operating activities include the litigation settlement paid. Stock dividends paid to shareholders, destruction of obsolete inventory, and acquisition of assets through a finance lease are non-cash activities.
Net Cash Flow from Operating Activities indirect method
Net Income
Add- Decrease in Inventory
Add- Increase in Accounts Payable
Add- Depreciation Expense
Minus: Increase in Account Receivable
Minus Gain on Sale of Securities
Net cash provided by operating activities
Net income
Add: Decrease in receivables
Add: Depreciation expense
Minus: Increase in inventories
Minus: Decrease in payables
Minus: Gain on sale of equipment
Net cash provided by operating activities
Operating
Changes in cash resulting from business operations
○ Cash received from customers
○ Dividend income
○ Interest income/expense
○ Cash paid for business expenses
