Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

FAR > Statement of Cash Flows > Flashcards

Statement of Cash Flows Flashcards

1
Q

What info does a statement of cash flows provide?

A
  • ability to generate cash flow
  • ability to pay debts and dividends
  • differences between net income and cash receipts/payments
  • effects of investing and financing transactions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Besides cash, what else does a SCF provide info of changes on?

A

Cash equivalents

Enterprise should have (and disclose) a policy for which short-term and liquid investments to treat as cash equivalents

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

For investments which are classified as cash equivalents, what about their transactions needs to be reported?

A

Nothing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the difference between the direct and indirect method for the SCF?

A

Only change is in operating activities

Direct – just like other activities
Indirect – starts with net income and adjusts it to arrive at cash from operating activities

Under direct method, it is still necessary to reconcile net income and cash from operating activities, so indirect method is most popular

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Under the direct method, at minimum, what must be separately reported in operating activities?

A
  • Cash from customers
  • Interest and dividends received
  • Other operating cash receipts
  • Cash paid to employees
  • Cash paid to suppliers (e.g. insurance, advertising)
  • Interest paid
  • Taxes paid
  • Other operating cash payments

Further breakdowns are permitted

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Under the indirect method, what must be removed from net income to arrive at operating activities?

A
  • deferrals of past operating cash receipts/payments
  • accruals of expected cash receipts/payments
  • investing cash flow items
  • financing cash flow items
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Under the indirect method, where should the income reconciliation be reported?

A

Either within the SCF or in a separate schedule (in which case the SCF only shows the net cash flow from operating activities)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What needs to be disclosed if the indirect method is used?

A

Interest paid (net of capitalized amount)

Income taxes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

If there is info about investing or financing activities that doesn’t result in cash flow changes, how should they be reported?

A

They should be disclosed

E.g. converting bonds to stock, exchanging property for other property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Can the SCF report cash flow as a per-share amount?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the format of a SCF?

A

Net cash flow from operating activities

Net cash flow from investing activities

Net cash flow from financial activities

Net increase (decrease) in cash and cash equivalents

Cash and CEs at beginning of year

Cash and CEs at end of year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Are the sales and maturities of trading securities considered operating or investing activities?

A

Operating

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are some unusual operating activities?

A

Cash received to settle lawsuits, charity donations

Basically, anything not classified as investing or financing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

If a company takes out a note to purchase goods for ordinary resale, how is the cash flow classified?

A

Both principal and interest payments are operating

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What assets are relevant to investing activities?

A

Held-to-maturity securities

Available-for-sale securities

PP&E

Equity investments

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What loan activity is covered in operating activities?

A

Inflow:
-all interest income

Outflow:

  • principal repayments on loans to acquire direct materials or goods for resale
  • all interest payments
17
Q

What loan activity is covered in investing activities?

A

Inflow:

  • principal collections
  • proceeds from sales of debt to third party

Outflows:

  • principal lent out
  • purchases of debt instruments
18
Q

What loan activity is covered in financing activities?

A

Inflows:
-proceeds from borrowing money (principal)

Outflows:
-repayment of principal

19
Q

What are the main things relevant to financing activities?

A

Debt Principal

Paying Dividends

Issuing Stock

Treasury Stock

20
Q

How are hedges classified on the SCF?

A

Classified in the same category as the item being hedged

21
Q

Starting with sales, how do you calculate cash collected from customers?

A 
Sales
\+ Beg. A/R
- Write-offs
- Ending A/R
= Cash collected
22
Q

Starting with the cost of sales, how do you calculate cash paid for inventory?

A 
Cost of sales
\+ Increase in Inventory
= Inventory purchases
- Increase in A/P
= Cash paid for inventory
23
Q

What modifies general and administrative expenses to arrive at cash paid for G&A exp.?

A

Bad debt expense

G&A Exp.
- Bad debt expense
= Cash paid for G&A exp.

24
Q

What modifies interest expense to arrive at interest paid?

A

Bond discount/premium amortization

Interest exp.
+ bond premium (- discount) amortization
= Interest paid

Note, this means that bond premium amort. is SUBTRACTED from the income itself, because it is added to an expense

25
Q

Starting with income tax expense, how do you calculate income taxes paid?

A

Income tax expense
- increase in income taxes payable
- increase in deferred tax liability
= income taxes paid

26
Q

What are some adjustments to net income for the indirect method of calculating operating cash flows?

A

Adding back non-cash expenses (e.g. depreciation, amortization, deferred taxes)

Subtracting gains on the sale of investments

Subtracting equity in other companies’ earnings (think equity method)

Subtracting gains on the extinguishment of debt

Subtracting increases in receivables

Adding increases in payables

27
Q

If dividends are declared in one year but paid in another year, what needs to be reported?

A

Nothing in the SCF – doesn’t even need to be disclosed

Same thing for stock dividends and for appropriated RE

28
Q

What about the sale of AFS securities is relevant to the operating and investing sections of the SCF?

A

Any cash proceeds from selling AFS securities are investing cash flows

Yet, since gain on these sales is recognized in income, that amount has to be SUBTRACTED when determining operating cash flows with the indirect method

Same goes for any other gain on sale

29
Q

If a company uses cash to purchase a cash equivalent, how is it reported on the SCF?

A

Not reported at all – there is effectively no net change

30
Q

How do you calculate cash outflows for insurance during the year?

A

Insurance expense
+ Increase in prepaid insurance
= Cash outflows for insurance

31
Q

How does income tax affect cash inflows?

A

Cash inflows are always presented as pre-tax, NOT net of tax

Total tax payment is included as a separate line item in operating activities

32
Q

How are capital lease payments accounted for in the SCF?

A

Capital lease payments are part reduction of principal and part interest, and they are treated normally – principal payment is financing activity, interest payment is operating

FAR (26 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions