Statement of Cash Flows

Question 1

What are examples of cash operating activities?

Answer 1

Collections on sales from customers
Cash payments for COGS and SGA
Interest received and paid
Dividends received
Acquisition and disposal of trading securities
Payments for income taxes
Any other not investing or financing

Question 2

What are examples of cash investing activities?

Answer 2

LIP
Loans - made by entity and principal collections
Investments - acquisition or disposal of AFS or HTM
Property Plant and Equipment - acquisition or disposal

Question 3

What are examples of cash financing activities?

Answer 3

Proceeds from issuing bonds or retiring bonds
Issuance of stock or treasury stock purchases
Borrowing or repaying loan
Dividends paid

Question 4

How is the statement of cash flows prepared using direct method?

Answer 4

Adjust sales for changes in A/R
Adjust COGS for changes in inventory and A/R
Deduct selling expenses if Allowance and A/D included
Adjust interest expense for amortization of bond premium or discount
Adjust income tax expense for changes in current or deferred taxes
* Do not include G/L from sales of AFS or HTM *
* Do not include non cash expenses like depreciation *

Question 5

How is the statement of cash flows prepared using indirect method?

Answer 5

Adjust non cash items
Deduct gains, add losses from non-operating items
Adjust changes in accrual related accounts

Question 6

How does amortization of bond discount affect statement of cash flows?

Answer 6

For issuer:
Increases non cash interest expense, add to NI

For investor:
Increases non cash interest income, subtract from NI

Question 7

How does amortization of bond premium affect statement of cash flows?

Answer 7

For issuer:
Decreases non cash interest expense, subtract from NI

For investor:
Decreases non cash interest income, add to NI