Statement of Cash Flows Flashcards by Maria Fonseca

What items are included in operating activities on the Statement of Cash Flows?

Cash received from Customers- Interest & Dividends- Trading Securities

Cash paid to Vendors- Suppliers- Interest- Taxes- Trading Securities

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What items are included in investing activities on a Statement of Cash Flows?

Cash received: Sale of PP&E- Sale of Investments- Loan Principle

Cash paid: Loans- Acquisitions- AFS or HTM Securities- Taxes- Trading Securities

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What items are included in Financing Activities in a Statement of Cash Flows?

Cash received: Issuance of Stock- Issuance of Debt

Cash paid: Dividends

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What is the direct method for a Statement of Cash Flows?

Starts with Income from Continuing Operations

Adjusts for changes in accounts like A/R- A/P- Inventory and non-cash revenues- expenses- gains- losses

If used- the Indirect Method must also be shown

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What is the Indirect Method for a Statement of Cash Flows?

Starts with Net Income

Adjusts for changes in accounts like A/R- A/P- Inventory and non-cash revenues- expenses- gains- losses

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ASC 230 requires that ________________ (L)

all business enterprises include a statement of cash flows in a complete set of financial statements.

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Cash Equivalents (L)

Temporarily idle cash as part of an enterprise’s cash management activities, purchasing and selling short-term, highly liquid investments such as treasury bills, commercial paper and money market funds.

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Generally, cash receipts and payments must be presented as ______________rather than as net changes in related balance sheet amounts. (L)

gross amounts

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The statement shall use descriptive terms such as _______ or _______________ rather than ambiguous terms such as funds. (L)

Cash, Cash and Cash Equivalents

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The total amounts of cash and cash equivalents at the beginning and end of the period shown in the statement of cash flows shall be the ___________ as similarly titled line items or subtotals shown on the balance sheet as of those dates. (L)

same amounts

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A reconciliation of net income to net cash flow from operating activities shall be provided. If the indirect method is used the reconciliation will be provided in? (L)

The reconciliation may be either reported within the statement of cash flows or provided in a separate schedule, with the statement of cash flows reporting only the net cash flow from operating activities.

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Activities related to the acquisition and disposal of assets other than those directly related to the enterprise’s operations (such as trade accounts and notes receivable, inventory, prepaid expenses). (L)

Investing Activities

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Cash flow per share shall _____ be reported in financial statements. (L)

not

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Transactions which result in no cash inflow or outflow during the period; however, they affect the assets, liabilities and/or equity of the enterprise. (L)

Noncash Investing And Financing Activities

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Two Disadvantages of the Direct Method of Reporting Cash Flows: (L)

1) The direct method does not link the net income reported on the income statement to the cash flow from operating activities.
2) The direct method does not provide information about intervals of lead and lags between cash flows and income by showing how the changes in current assets and current liabilities, relating to operations, affect operating cash flows.

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The direct method of reporting operating cash flow reports ____________________ (L)

major classes of gross cash receipts and gross cash payments and the resulting net cash flow from operating activities.

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The principal advantage of the Indirect method of reporting cash flows: (L)

Focuses on the differences between net income and net cash flow from operating activities, linking the income statement to the statement of cash flows.

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Ratio Analysis (L)

Develops comparisons and measures relationships between two amounts from a single statement or from two different statements.

Financial statements for two or more years and statements of percentages indicating the relative change in items on the statements over time facilitate the identification, comparison and evaluation of trends. (L)

Comparative Financial Statements and Horizontal Analysis

Quick Ratio (Acid Test Ratio) (L)

C+M/S+Rec/ CL CL
or CA – Inv.

Degree of immediate liquidity

Inventory Turnover (L)

Cost of Goods Sold/
Av. Inv.

Liquidity of inventory and
inventory efficiency

The major difference between IFRS and US GAAP on the cash flow statement is: (L)

The location on the cash flow statement of interest and dividends. Interest and dividends received may be reported as either operating or investing activities.

Rate of Return on Investment (L)

R.O.I. = Asset Turnover / Profit Margin

Under IFRS, interest and dividends paid may be reported as either _______ or _______ activities.. (L)

operating, financing

Requirements for Cash Equivalents (2) (L)

1) Readily converted to known amounts of cash. | 2) So near maturity that they present insignificant risk of change in value because of changes in interest rates.

The primary purpose of the Statement of Cash Flows is? (L)

To provide external users with relevant information concerning an enterprise's gross cash receipts and payments during a period.

The statement shall group and classify cash receipts and cash payments as resulting from____________________________. (L)

operating, investing or financing activities of the enterprise

A reconciliation of net income to net cash flow from operating activities shall be provided. If the direct method is used the reconciliation will be provided in ______________________ (L)

in a separate schedule

The statement shall report _________________ by operating, investing and financing activities and the ____________ of those flows on cash and cash equivalents during the period in a manner that reconciles beginning and ending cash and cash equivalents. (L)

Net Cash Provided or used, Net effect

Noncash investing and financing activities that affect recognized assets or liabilities shall be reported in? (L)

Related disclosures (either narrative or summarized in a schedule).

All transactions and other events that are not defined as investing or financing activities. Operating activities generally involve producing and delivering goods and/or providing services to customers. (L)

Operating Activities

ASC 230 __________ enterprises to use the direct method in reporting cash flows from operating activities; however, it does not require its use. (L)

encourages

Transactions related to obtaining resources from owners and providing them with a return on, and return of their investment; borrowing money and repaying or otherwise settling the obligation; and obtaining and paying for other resources obtained from creditors on long-term credit. (L)

Financing Activities

Principal advantage of the direct method of reporting cash flows is _______________________ (L)

that it shows gross operating cash receipts and payments.

Two Disadvantages of the Indirect Method of reporting Cash Flows (L)

1) The indirect method does not show gross operating cash receipts and payments. 2) The indirect method is inconsistent with the statement objective of providing information concerning gross cash receipts and payments during a period.

Indirect Method of Reporting Cash Flows (L)

The indirect method reports the same amount for net cash flow from operating activities; however, it does not report major classes of gross cash receipts and payments from operating activities.

Statements which express each item on a particular financial statement as a percentage of a base amount emphasize the relationship among the items included, the relative importance of amounts included, and the significance of changes in items from one period to the next. (L)

Common Size Statements

Receivables Turnover (L)

Net Credit Sales/Av. Rec. (net) Liquidity of receivables– efficiency and collection period

Current Ratio (L)

Current Assets/Current Liabilities Primary measure liquidity– able to meet current obligations

Debt-Equity (L)

Debt/Equity Relative debt funds — financial structure

The DuPont system of analysis (L)

Highlights and examines in detail the elements comprising the rate of return on investment, emphasizing the effect that various elements of the financial statements have on the Rate of Return on Investment ratio.

True or False? Under IFRS Cash Flow per share can be disclosed? (L)

True. The cash flow effect of a discontinued operation must be disclosed separately IFRS also permits the disclosure of a cash flow per share. This is not allowed under US GAAP.

Under IFRS, interest and dividends received may be reported as either _______ or _______ activities. (L)

operating, investing