Statement of Cash Flows Flashcards
Users of the cash flow statement can gain a better idea of a company’s
Liquidity and Solvency
Define solvency
The ability for a company to meet its long term debts and obligations.
How do companies manipulate cash flow from operations?
They can misclassify expenses.
What are the three sections of the cash flow statement in the order as they appear?
Operating activities, investing activities, and financing activities.
What impact does a company purchasing equipment have on cash flows?
No impact
Beyond the obvious, what are some different items included in the cash flow of operations?
Taxes paid, depreciation, and amortization
What time period does the operating section typically cover.
One accounting period, typically one year.
Where will interest paid on borrowing be located in the statement of cash flows?
Under GAAP it would be under operating activities, under IFRS the company can chose between the operating or financing section.
Where are dividends that are paid by the company located in the statement of cash flows?
Under GAAP they would be included in the financing section but under IFRS either the operating or financing sections.
How do you create the operating section of the statement of cash flows under the direct method?
Subtract operating outflows (cash collected from customers) from operating inflows (cash paid to suppliers)
CFO
Cash Flow from Operations
How are inflows shown on the statement of cash flows?
Without parenthesis.
How are outflows shown on the statement of cash flows?
With parenthesis.
Which method of calculating cash flow of operations is typically preferred and why?
The indirect method, because it does not require inside information and can be constructed using information from the other financial statements. Also both GAAP and IFRS would require the direct method to be reconciled.
How do you create the operating section of the statement of cash flows under the indirect method?
Begin with net income and begin to “de-accure”
