Statement of Cash Flows

Question 1

What are the supplemental disclosures used on statement of CF, using indirect method?

Answer 1

• A supplemental disclosure of cash paid for interest and income tax paid on operating activities
• Noncash capital lease would be disclosed in either investing or financing activities

Question 2

What are the two ways of reporting operating activities for CF statement?

Answer 2

• Direct: start with classes of cash receipts/disbursements to arrive at net cash flows provided by (used in) operating activities.
• Indirect: start with NI and then any adjustments of activities (usually opposite with how you normally book income/expenses) to get to net cash flow provided by (used in) operating activities.

Question 3

what do operating activities include?

Answer 3

• Working capital such as current assets and current liabilities. Assets have inverse relationship vs. liabilities have direct relationship with cash. Ex: increase in CA and decrease in CL will be subtracted (more cash was paid). decrease in CA and increase in CL will be added (less cash was paid)
• Income and loss items: adjust these items in the opposite way when add/substract income/expense items using indirect method.
• interest payment for long term debt
• dividend received

Question 4

What do investing activities include?

Answer 4

Invest in something such as purchase or sale of long term assets, cash down payment when purchase long term debts,…

Question 5

What do financing activities include?

Answer 5

• Financing debt or issuing stocks to get cash, or making principal payments for long term debt, dividend payments
• They also include obtaining resources from owners/shareholders then provide them with a return on their investments. Ex: proceeds from sale of treasury stocks