Statement of cash flows Flashcards
How are T Bills treated on the statement of cash flows?
U.S. Treasury bills are not considered to be a cash equivalent item so purchasing the T-bill merely changes the form of cash held, it does not change the cash poisition of the entity.
This, the purchase is not reported on the statement of cash flows.
What are the required disclosures under the direct method under U.S. GAAP?
- The major classes of gross cash receipts and gross cash payments.
- The amount of income taxes paid.
- A reconciliation of net income to net cash flows from operations.
The reconcilation of retained earnings to net cash flows is NOT required.
Cash flows from operating activities
(CFO)
- Selling products/collecting receivables
- Purchasing inventory/paying vendors
- Purchsing supplies and services/paying vendors
- Paying taxes
- Purchasing/selling trading secuirites
- Collecting interest on an investment
- Collecing dividends on an investment
- Paying interest on debt
Cash flows from Investing activities
(CFI)
- Purchasing long-term assets or long-term investments for cash
- Selling long-term assets or investments (noncash equivalents and non-trading securities) - cash proceeds
Cash flow from financing activities
(CFF)
- Borrowing funds (i.e, bank loans, issuing debt)
- Paying principal on debt
- Issuing common or preferred stock
- Paying dividends on common or preferred stock (not declared)
- Repurchsing stock
Which shold be disclosed as **supplemental information **in the statement of cash flows?
Cash flow per share?
Conversion of debt to equity?
Cash flow per share- NO
Conversion of debt to equity- YES
Disclosures using indirect method
Financial statements should not report an amount of cash flow per share.
Things that should
- Interest paid, net of amounts capitalized
- Income taxes paid
- Dividends paid on preferred stock
Redemption of bonds payable formula
Beginning balance (end of year 1)
Add: Issuance of bonds for whatever
Subtotal
less: (redemption of bonds payable) plug
Ending balance (end of year 2)
Operating activities (indirect method)
Current asset increase?
Current asset decrease?
Current liabilities increase?
Current liabilities decrease?
- Current asset increase: subtract
- Current asset decrease: add
- Current liabilities increase: add
- Current Liablities decrease: subtract
Operating activities summary
- Cash received from customers
- Cash paid to suppliers and employees
- Interest receiced and interest paid
- Dividends received
- Purchases and sales of trading securities (if appropirate)
- Income taxes paid
- All other cash transactions
Operating activities (indirect method)
- Record net income
- Adjust net income for noncash items such as deprecation and the impairment of goodwill
- Reverse the income statement gain or loss shown on the sale of any asset
- Adjust for changes in current assets and current liablities except for cash accounts andn accounts treated elsewhere in the statement
Financing activities (direct and indirect methods)
- All sums borrowed and/or repaid (principal amount only)
- Issuance and/or repurchse of own company stock
- Dividends paid (not received)
Investing activities (direct and indriect methods)
- All sums lent and/or repaid (principal only).
- Purchase and/or sale of noncurrent assets (including fixed assets, intangible assets, and marketable securities).
Cash payments made to reduce debt prinicpal are properly reported as a financing activitiy.
Cash inflows and outflows should be seperated.
If a gain is made and then subesequently a purchase is made, you would split them up as a cash inflow and a cash outlfow.
When asking for net income, and it gives you:
Cash provided from operating activities
Deprecation of equipment
Impariment of goodwill
Dividends paid on common stock
What do you do?
Cash provided from operating activities
(Deprecation on equipment) expense
(Imapirment of goodwill) expense
Net income
Dividends effects retained earnings.
Cash provided by operating activities. Where do you start?
Net income
then any adjustments in the operating section
Where is unamoritized bond discount located?
In the operating activities section
What is the only marketable security included in the operating section?
Trading
Available for sale and marketable are in investing.
Where are income taxes paid and net interst payments reported on the statement of cash flows?
The supplemental disclosures.
Under IFRS interest received during a period is reported on the statement of cash flows where?
in the Operating and investing section
Under IFRS, interest paid during a period is reported where?
In the operating or financing section
Where is payment of interest located on the statement of cash flows?
In the operating section.
Principal is located in the financing section
When doing these illogical cash flow quesitons, ignore stupid things like “cash paid to suppliers for inventory purchases.”
So if it gives you an inrcrease in a current asset (inventory) and a decrease in a current liablity (A/P), just treat it as your adjustments to current assets/liabilities.
If equipment is sold at a gain, what cash inflow is showed and where?
Carrying amount of the equipment
+
The gain
When something like new equiment is bought, what is showed as a cash outflow
The Cash paid for the new equipment.
Remember, this is the statment of cash flows, so we are not worrying about the note payable, it is not a CASH outflow.
You have to think opposite when looking for net income on the statement of cash flows.
Instead of starting with net income and adding things like deprecation expense and impairment of goodwill, you have to start at operating activities and subtract these things to get net income.
Income related acitivites are all automatically what kind of cash flow?
When unarmotized bond discount is decreased $xxx by the year, what the fuck does that mean dumbass?
It means it was amortized at the end of the year.
Use your fucking head.
The operating activities section includes what itmes?
- Current assets and current liabilities
- Other income statement items.
Under the indirect method, net income is adjusted by obvious things to get to net cash.
Indirect method, how are the follwing accounts treated in the operating section?
Increase in taxes payable
Dividends received
Increase in taxes payable- subtract
Dividends received- NOT INCLUDED IN INDIRECT METHOD
Remember indirect method is income statment items plus changes in current assets and liablities.
When figuring out operating expense when they give you the accounts that increase in decrease, you have to think of it differently.
Example.
- **Increase in prepaid expenses- **Expenses which have been paid but not yet used, therefore it must be added.
- **Increase in accured liabilities- **Operating expenseswhich have been incurred or used but not paid, therefore they must be subtracted.
Financing section-
What does the borrowings under a line of credit mean?
It represents an increase in cash flows
Tax related to the gain is located where?
In the operating section of cash flows.
Cash paid to supplies forumula
DIRECT METHOD
COGS
Add: Increase in inventory
less: (Decrease in inventory)
less: (increase in accounts payable)
Add: Decrease in accounts payable
Cash paid to suppliers
