Statement of Cash Flows (SOCF) Flashcards
what is the cash flow statement?
a report that shows how cash has entered and left the business over a period of time
what does the cash flow statement consist of?
cash flow generated from operating activities
cash flow generated from financing activities
cash flow generated from investing activities
cash flow generated from operations?
- most important part of SOCF
- shows how much cash was actually generated from selling the company’s products or services
- cash from core business activities
cash flow from investing activities?
cash spent/received from investments
cash from outside of the core business
cash flow from financing activiites?
- cash transactions that involved raising, borrowing or repaying capital
(e.g., common stock issued, dividends paid, bank loan taken out, debt repayment)
at the bottom of the SOCF…?
shows a reconciliation to the balance sheet
shows cash at the beginning and end of the period
cash flow statement equation?
beginning cash + CF operations + CF financing + CF investing = ending cash balance
two types of SOCF?
indirect and direct method
what does the variation in SOCF method impact?
CF investing activities and CF operations
indirect method?
takes net income from I/S as starting point
issue is that net income doesn’t equal cash
therefore indirect method includes lots of adjustment line items
direct method?
doesn’t start with net income, lists various transactions that produces cash amounts received/paid
e.g., cash received from customers, cash paid to suppliers, cash paid to employees
which SOCF method is GAAP?
both indirect and direct method are accepted by GAAP and IFRS
indirect method characteristics?
- accepted by GAAP & IFRS
- linked to P&L & SOFP
- used by most companies
- CF operations includes net income and various adjusting line items
direct method characteristics?
- accepted by GAAP & IFRS
- easier to read with better insight
- very time consuming
- CF operations doesn’t include net income, but various CF line items
does net income = cash?
no
various non-cash transactions impact cash flow