Statement of Cash Flows

Question 1

Name the four major sections in the direct method cash flow statement.

Answer 1

Operating, investing, financing, and reconciliation of net income and net operating cash flows.

Question 2

Name two formats permitted for the statement of cash flows.

Answer 2

direct and indirect

Question 3

When is a Statement of Cash Flows required?

Answer 3

For all business enterprises that report both financial position (Balance Sheet) and results of operations (Income Statement) for a period.

Question 4

What is reported on the Statement of Cash Flows?

Answer 4

• Information about the cash receipts and cash payments for an entity
• the difference between net income and net operating cash flows
• information about investing and financing activities which do not involve cash inflows or outflows.

Question 5

What is the direct method on the statement of cash flows?

Answer 5

This method presents actual inflows and outflows from cash operations. Must also diclose the indirect method (reconciliation of net income to cash flows from operations) as a supporting schedule.

Question 6

What is the cash flow category for interest paid and received?

Answer 6

Operating activities

Question 7

What is the reporting basis of the statement of cash flows?

Answer 7

The reporting basis is cash and cash equivalents.

Question 8

What is the cash flow category for collections of principal amounts on loans made to other entities?

Answer 8

Investing

Question 9

What is the indirect method on the statement of cash flows?

Answer 9

Reconciles net income to cash flows from operating activities.

Question 10

What is the basic purpose of the statement of cash flows?

Answer 10

The basis purpose is to provide information about the cash receipts and cash payments for an entity to help investors, creditors, and others.

Question 11

List the required categories for the Statement of Cash Flows.

Answer 11

• Operating Activities
• Investing Activities
• Financing Activities
• Effects of Foreign Currency Translation
• Reconciliation of net cash inflows/outflows with the reported change in cash and cash equivalents on the Balance Sheet
• Non-Cash Investing and Financing Activities

Question 12

What is the cash flow category for dividends paid?

Answer 12

Financing

Question 13

What are some examples of cash outflows classified as Investing Activities?

Answer 13

• Purchase of long-term assets
• Lending to others
• Investment in debt and equity securities held to maturity and available for sale
• Purchase of productive assets (not inventory)

Question 14

What is the cash flow category for purchases of trading securities?

Answer 14

Operating

Question 15

What is the cash flow category for loans made to other entities?

Answer 15

Investing

Question 16

What are some examples of cash outflows classified as Financing Activities?

Answer 16

• repurchase of own stock
• paying back lenders (principal only)
• payment of dividends

Question 17

What is the cash flow category for purchases of securities available for sale?

Answer 17

Investing

Question 18

What is the cash flow category for principal payments on short term and long term loans from financial institutions made to acquire inventory for resale?

Answer 18

Financing

Question 19

Where are non-cash investing and financing activities reported?

Answer 19

They are reported on the face of the Statement of Cash flows or as a separate disclosure.

Question 20

What is the cash flow category for principal payments on short term and long term loans from suppliers made to acquire inventory for resale?

Answer 20

Operating

Question 21

What are some examples of cash inflows classified as Investing Activities?

Answer 21

• Sale of long term assets
• Collection of loan principal
• Disposal of held to maturity and available for sale debt and equity securities
• Sale of productivity assets (not inventory)

Question 22

What are some examples of cash inflows classified as Financing Activities?

Answer 22

• Sale of own stock

- Proceeds from borrowing

Question 23

Where is the cash effect of foreign currency translation reported?

Answer 23

It is reported as a separate part of the reconciliation of the change in cash and cash equivalents during the period.

Question 24

What is the cash flow category for principal payments on short term and long term loans (from financial institutions or dealers) made to acquire plant assets?

Answer 24

Financing

Question 25

amount paid to suppliers

Answer 25

amount paid to suppliers = COGS - Inventory decrease - AP increase

Question 26

indirect method

Answer 26

Company starts with net income and “backs out” all of the accruals made by accrual accounting

Question 27

Non Cash expenses

Answer 27

Any non cash expenses on the income statement needs to be ADDED back to net income to derive cash flows from operations. Any non cash gains on the income statement need to be subtracted from net income to derive cash flows fro operation.