Statement of Cash Flows

Question 1

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

Answer 1

Cash received from Customers- Interest & Dividends- Trading Securities

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

Question 2

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

Answer 2

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

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

Question 3

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

Answer 3

Cash received: Issuance of Stock- Issuance of Debt

Cash paid: Dividends

Question 4

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

Answer 4

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

Question 5

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

Answer 5

Starts with Net Income

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

Question 6

What is in the Operating Cash Flows Section for the Indirect Method and how is each accounted for?

Answer 6

1. Starts with Net Income.
2. Add back Depreciation, Depletion & Amortization Expense
3. Add back Loss on Sale of Non-Current Assets - the actual sale of the PP&E belongs to Investing Activities, but the gain or loss belongs here.
4. Subtract Gain on Sale of Non-Current Assets – the actual sale of the PP&E belongs to Investing Activities, but the gain or loss belongs here.
5. Every change in an account with a normal DR balance has an opposite effect of the CF. i.e. if the account increases, cash decreases (assets increase means you bought something so cash went out to pay for it.) AR, Inventory, Prepaids
6. Every change in an account with a normal CR balance has the same effect. i.e. if the account increases, cash increases. AP