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Financial Accounting > Statement Of Cash Flows > Flashcards

Statement Of Cash Flows Flashcards

1
Q

What is cash flow stmt?

A

Cash flow statement tracks a company’s cash inflows and outflows throughout an accounting period. Shows beginning cash balance, ending cash balance, where it received additional cash from, and how the company spent its cash.

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2
Q

How does Cash Flow Statement benefit users?

A

They would know the liquidity and solvency of company and its ability to buy resources with cash or repay the creditors.

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3
Q

What is accrual accounting?

A

When revenues are earned, does not necessarily mean cash was received. Accrue revenue and receive cash later.

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4
Q

If a business has positive net income, does it mean it has positive cash flows?

A

Does not mean business increased its cash by that amount. Not necessarily mean positive cash flows.

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5
Q

What do you use to prepare a Cash Flow Statement?

A

1) Income Statement 2) Balance Sheet 3) Transactional data

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6
Q

Sections in a Cash Flow Statement

A

1)Operating Activities 2) Investing Activities 3)Financing Activities

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7
Q

Purchasing equipment on credit on selling inventory on credit

A

Impact on Cash Flow - None

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8
Q

What are operating activities?

A

All Cash Flows relating to preparing and providing goods and services to customers. Example: cash used to purchase supplies and manufacture the products as well as cash received from selling the products to customers, wages paid to employees, expense to operate assets

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9
Q

US GAAP - Interest paid on borrowings is under which setion?

A

Operating Section

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10
Q

US GAAP- Dividends Paid is under which section

A

Financing Section

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11
Q

IFRS - Interest paid is under which section

A

Operating or Financing

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12
Q

IFRS-Dividends Paid is under which section

A

Operating or Financing

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13
Q

Examples of Operating Activities in US GAAP

A

Interest Paid
Wages Paid
Taxes Paid

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14
Q

Example of Operating Activities under IFRS

A

Interest Paid
Depreciation
Cash distributed to shareholders

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15
Q

Under IFRS Purchase of property is what activity?

A

Financing Activity

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16
Q

What is the Direct Method for Operating Section of Stmt Of Cash Flows?

A

Operating Cash inflows - Operating Cash Outflows = Net Cash Flow from Operating Activities

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17
Q

What are the Components of CFO (Cash Flow From Operations)

A

1) Cash Collected From Customers - Cash collected from current sales, cash collected from previous credit cases (accounts receivables), Cash collected from customers who prepaid for goods/services
2) Cash Paid to Suppliers - Cash purchases to produce goods or deliver services, cash paid for items and services previously received. Accounts payable, wages payable, Cash paid for items that will be received in the future, prepaid rent, prepaid insurance

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18
Q

What is Indirect Method for Operating Section Of Stmt Of Cash Flows?

A

Indirect Method adjusts net income to become actual cash flows by undoing the impact of accruals. This process is called de-accruing net income.

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19
Q

How is the net income adjusted in indirect method?

A

Start with Net income and just fo differences between revenues and cash in flows, expenses and cash outflows. There is difference in revenues and expenses due to the accrual accounting method.

20
Q

What are the non cash expenses?

A

Depreciation and Amortization. Cash is not paid out. They are recorded to match the expense of long lived assets to revenue they generate

21
Q

What is the impact of Depreciation and Amortization on Net Income?

A

Decrease the net income

22
Q

To get CFO, what is added back to Net Income?

A

Depreciation and Amortization (since these did not involve operating cash inflows and outflows)

23
Q

Does adding back Depreciation and amortization increase CFO?

A

No, it just undoes the effect of depreciation on net income.

24
Q

When do Gains and Losses occur

A

Gains & Losses are one time transactions when an asset is sold at a value thats higher or lower than the book value

25
Q

To get CFO, are gains and losses added or subtracted to Net income

A

Gains are subtracted and Losses are added. As they are non operating non cash transactions

26
Q

How does Accounts receivable impact Operating Cash Flow?

A

Accrual Accounting, when revenue is recognized without receiving cash. Accounts receivable increases. Since that amount is noe rceived in cash, increase in accounts receivable should be subtracted from Net Income. Decrease in accounts receivable, should be added to Net income.

27
Q

How do current asset accounts impact Operating Cash Flows

A

When current asset account increases (company pays cash), it needs to be subtracted from net income because cash decreases. When current asset account such as receivables decreases , it receives cash. + to Net income

28
Q

Summary Of Adjustment To Net Income to Get CFO

A

Increase in current assets : Subtract from Net Income

Decrease in Current Assets : Add to Net Income

29
Q

How are Liability Accruals Adjusted For Operating Cash Flows?

A

Its the opposite of adjusting for current assets. If current liabilities increase, added to Net income. Current liability decrease, subtracted from Net Income.

30
Q

How to Adjust Net income to get CFO using Indirect Method?

A
  1. Increase in Operating Current Assets => Subtract From Net Income
  2. Decrease in Operating Current Assets => Add to Net Income
  3. Increase in Operating Current Liabilities => Add to Net Income
  4. Decrease in Operating Current Liabilities => Subtract Net Income
  5. Gains are subtracted
  6. Losses are added
  7. Depreciation/Amortization added
31
Q

What are investing activities?

A

Activities that are associated with long-lived assets such as acquring or divesting PP&E. They are expenditures recorded as assets. Investing section would like buying buildings and upgrading equipment as cash outflows/expenditures.

32
Q

Examples Of Cash Flow From Investing Activities

A 
Purchase of PP&E
Selling Long term assets
Long term investments in securities
Sales of investment securities
Loans REceivables
33
Q

What are Financing Activities?

A

1) Company borrows cash
2) Issues securities
3) Repaying borrowings
4) Paying back investors
5) Retiring Stock
6) Repurchasing Stock
7) Dividends Paid

34
Q

Example Of Financing Section of Cash Flow Statement

A

1) Short/Long term debt proceeds
2) Short/Long Term debt payments
3) Proceeds from Stock issuance
4) Dividends paid
5) Loans Payable
6) Mortgages Payable

35
Q

Summary of Interest & Dividends Classlification in US GAAP IFRS Cash Flows

A

1) Interest Received -> Operating in US GAAP, Operating or Investing in IFRS
2) Dividends Received->Operating in US GAAP, Operating or Investing in IFRS
3) Interest Paid ->Operating in US GAAP, Operating or Financing in IFRS
4) Dividends Paid -> Financing in US GAAP, Operating or Financing in IFRS
5) Income Taxes -> Operating in US GAAP, Operating unless associated with Financing Or Investing Activity in IFRS

36
Q

Statement Of Sources and Uses Of Funds

A

This statement is based on Balance Sheet and shows the difference in the accounts from beginning of the period to ending of the period. Each change in account is classified as source or use of fund

37
Q

If asset account increases, is it a source of funds or use of funds

A

Use of funds. Example - pruchasing an equipment

38
Q

If asset account equipment decreases, is it a source of funds or use of funds

A

Cash was received probably on sale. Source of funds

39
Q

If liability account increases, is it a source of funds or use of funds

A

Source of funds because you are saving cash

40
Q

Decrease in liabilities is source or use of funds?

A

Decrease in liabilities, means you paid off using cash, so its use of funds

41
Q

For Owner’s Equity

A

Increase in Equity Share Capital, Increase in Preferred Share Cpital, Increase in Retained Earnings =>Sources of Funds

42
Q

Formula for Change in Working Capital

A

Source Of Funds - Use Of Funds

43
Q

Cash Flows for Startup

A

1) Negative Operating Cash flows because cash has to be spent on raw materials, suppliers, new equipment, operating space
2) Negative Investing Cash Flows
3) Varies for Financing Cash Flows

44
Q

Cash Flows for Profitable/Growing Company

A

1) Positive Operative Cash flows as company is earning revenue to cover operating expenses
2) Negative as company is still investing in pp&e
3) Varies depending on Company’s operating cash flow and if it is enough to pay for investing activities and remainder of cash to pay down loans. If company needs money from creditors and investors then positive financing

45
Q

Cash Flow for Mature Steady State Company

A

1) Positive operating cash flows
2) Cash flow from investing activities slightly negative because they are still purchasing new equipment
3) Negative Financing Cash Flow , because they have enough cash from operating cash flows, that they dont need to loan money. They would sometimes have extra cash to pay dividends and repay loans

46
Q

Cash Flows For a company in State Of Decline

A

1) Negative Operating Cash Flows
2) Cash Flow from investing activities is positive because , no need to buy equipment and company can sell off old equipment
3) Positive Or Negative - Varies because not enough cash flow to pay off its loans, or challenging to obtain loans as company is declining

47
Q

Cash Flow Manipulation

A

Account scandals, where expenses can be classified as assets resulting in positive operating cash flows

Financial Accounting (9 decks)

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