Statement of Cash Flows

Question 1

Sections of the Statement of Cash Flows

Answer 1

Operating

Investing

Financing

Question 2

Methods to Prepare the Operating Section

Answer 2

Direct Method

Indirect Method

Question 3

Direct Method

Answer 3

you first need to consider the primary sources and recipients of cash from operating activities. This generally includes:

cash received from customers

cash paid to suppliers

cash paid to employees

cash paid for interest

cash paid for taxes

cash received for interest

cash received from dividends

Question 4

Cash Receipts from Customers

Answer 4

Sales +/- change in deferred revenue +/- change in accounts receivable

Question 5

Cash Paid to Suppliers

Answer 5

COGS + other operating expenses +/- change in accounts payable and accrued liabilities +/- change in inventory and prepaid expenses

Question 6

Cash Paid to Employees

Answer 6

Salaries and wages expense +/- change in wages payable

Question 7

Cash Paid for Interest

Answer 7

Interest expense +/- change in interest payable

Question 8

Cash Paid for Taxes

Answer 8

Income tax expense +/- change in taxes payable

Question 9

Indirect Method

Answer 9

Start with net income and then adjust it to only include operating cash flows. The first step is to adjust for any non-cash and/or non-operating activities included in net income. This generally includes:

depreciation and amortization

gains and losses on sale of assets

The next step is to adjust for the impact of accruals and deferrals on net income. This generally includes:

changes in current assets

changes in current liabilities

Question 10

Investing Cash Flows

Answer 10

PP&E

Intangibles

Investments

Question 11

Financing Cash Flows

Answer 11

dividends paid

changes in demand loans

changes in term loans

issue or redemption or share capital