Statement of Cash Flows

Question 1

What is the primary purpose of the statement of cash flows (SCF)?

Answer 1

to provide information about the cash receipts and cash payments of an enterprise during a period of time

Question 2

Cash flow information is considered useful to investors, creditors, and other financial statement users to assess what 4 things?

Answer 2

1. the entity’s ability to generate positive future cash flow
2. the entity’s ability to meet obligations and pay dividends and its need for external financing
3. the reasons for differences between net income and associated cash receipts and payments
4. the effect on an enterprise’s financial position of both its cash and noncash investing and financing transactions that took place during the period

Question 3

What items does IFRS show differently in the cash flow statement?

Answer 3

1. extraordinary items are required to be disclosed separately under the categories.
2. cash flow from the acquisition or disposal of a subsidiary is presented separately as an investing activity
3. bank overdrafts are classified as financing activities
4. interest and dividends are reported as operating activities
5. noncash investing and financing activities are not reported on the cash flow statement but are disclosed in the notes to the FS

Question 4

What are the 3 primary sections of the SCF?

Answer 4

1. cash flows from operating activities
2. cash flows from investing activities
3. cash flows from financing activities
   MUST be in this order

Question 5

Name the cash inflows from operating activities in the SCF?

Answer 5

1. cash receipts from sales of goods or services
2. cash receipts from interest and dividends on investments in another enterprise
3. all other cash receipts that are not classified as either investing or financing

Question 6

Name the cash outflows from operating activities in the SCF?

Answer 6

1. cash payments to acquire materials for manufacture or goods for resale
2. cash payments to other suppliers and employees for goods and services
3. cash payment to government for taxes, duties, other fees or penalties
4. all other cash payments that are not classifies as investing or financing activities

Question 7

Name the cash inflows from investing activities in the SCF?

Answer 7

1. cash receipts from collections or sales of loans made by the enterprise and of other debt instruments that are purchased by the enterprise
2. cash receipts from sales of equity securities of other enterprises
3. cash receipts from the sale of property, plant and equipment and other productive assets

Question 8

Name the cash outflows from investing activities in the SCF?

Answer 8

1. cash payments for loans made by the enterprise and payments to acquire debt instruments of other entities
2. cash payments to acquire equity instruments of other enterprises
3. cash payments to purchase property, plant, as well as equipment and other productive assets

Question 9

Name the cash inflows from financing activities in the SCF?

Answer 9

1. cash proceeds from issuing equity instruments

2. cash proceeds from issuing bonds, mortgages, notes and other ST and LT debt instruments

Question 10

Name the cash outflows from financing activities in the SCF?

Answer 10

1. cash payments of dividends or other distributions to owners including outlays to reacquire the enterprise’s instruments
2. cash repayment of amounts borrowed
3. other principal cash payments to creditors who have extended LT credit

Question 11

Enterprises are encouraged to use the direct method with disclosures of at least 7 items. What are they?

Answer 11

1. cash collections from customers
2. interest and dividends received
3. other operating cash receipts
4. cash paid to employees and other suppliers of goods and services
5. interest paid
6. income taxes paid
7. other operating cash payments

Question 12

Regardless of whether the direct or indirect method is used to determine cash flows from operating activities, what 3 items are required to be disclosed in the SCF or related notes?

Answer 12

1. amount of income taxes paid during the period
2. amount of interest paid during the period
3. reconciliation of net income and net cash flows from operating activities. If the direct method is used, this is ordinarily done in the related note; if the indirect method is used, this is ordinarily part of the SCF section on operations

Question 13

Is cash flow per share presented in the SCF?

Answer 13

no

Question 14

Where does information of noncash investing and/or financing disclosed?

Answer 14

must be disclosed outside the main body of the SCF

Question 15

FASB exempts 2 types of organization from presenting SCF. What are they?

Answer 15

1. defined benefit pension plans

2. highly liquid investment companies that meet specific conditions

Question 16

Exception for banks, saving institutes and credit unions regarding SCF.

Answer 16

they may report certain cash receipts and payment as net amounts rather than gross amounts. This includes deposits places with other financial institutions and withdrawals of deposits, time deposits accepted and repayment of deposits as well as loans made to customers and principal collections of loans

Question 17

How are cash flows from hedging future contracts, forward contracts, option contracts or swap contracts accounted for?

Answer 17

The may be classified in the same category as the cash flows from the items being hedged, provided that the accounting policy is disclosed.

Question 18

What are the 4 recommended steps in preparing SCF?

Answer 18

1. determine the change in cash for the period, noting not only the amount of change but also the direction of change
2. analyze all trial balance or balance sheet accounts to determine cash flows in operating, investing and financing activities
3. determine that the amounts of operating, investing and financing cash flows reconcile the change in cash for the period. If they do not, reconsider changes in balance sheet accounts to identify incorrect or omitted items. Continue until the reconciliation can be made
4. prepare the statement of cash flow, applying the form and content principles, including supplementary disclosures