Statement of Cash Flows (SOCF) Flashcards

1
Q

what is the cash flow statement?

A

a report that shows how cash has entered and left the business over a period of time

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2
Q

what does the cash flow statement consist of?

A

cash flow generated from operating activities

cash flow generated from financing activities

cash flow generated from investing activities

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3
Q

cash flow generated from operations?

A
  • 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
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4
Q

cash flow from investing activities?

A

cash spent/received from investments

cash from outside of the core business

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5
Q

cash flow from financing activiites?

A
  • cash transactions that involved raising, borrowing or repaying capital

(e.g., common stock issued, dividends paid, bank loan taken out, debt repayment)

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6
Q

at the bottom of the SOCF…?

A

shows a reconciliation to the balance sheet

shows cash at the beginning and end of the period

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7
Q

cash flow statement equation?

A

beginning cash + CF operations + CF financing + CF investing = ending cash balance

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8
Q

two types of SOCF?

A

indirect and direct method

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9
Q

what does the variation in SOCF method impact?

A

CF investing activities and CF operations

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10
Q

indirect method?

A

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

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11
Q

direct method?

A

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

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12
Q

which SOCF method is GAAP?

A

both indirect and direct method are accepted by GAAP and IFRS

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13
Q

indirect method characteristics?

A
  • accepted by GAAP & IFRS
  • linked to P&L & SOFP
  • used by most companies
  • CF operations includes net income and various adjusting line items
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14
Q

direct method characteristics?

A
  • 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
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15
Q

does net income = cash?

A

no

various non-cash transactions impact cash flow

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16
Q

examples of non-cash transactions that impact net income?

A
  • depreciation/amortisation is a non-cash transaction
  • gain/loss on disposal of assets is a non cash transaction
  • sales made on credit
  • purchases made on credit
  • increase/decrease in inventory
17
Q

how is CF operations calculated with indirect method?

A
  • get net income from I/S
  • adjust for non-cash transactions impacting net income (e.g., depreciation, amortisation, gains/losses on sale of NCA’s etc)
18
Q

how is CF investing activities impacted by non-cash transactions?

A
  • depreciation/amortisation impacts net income, but doesn’t impact cash
  • gain/loss on disposal impacts net income, but not cash
19
Q

cf investments + cf operations + cf financing = ?

A

net change in cash

net change in cash + beginning cash = ending cash

20
Q

changes in working capital?

A

consists of changes in inventory, receivables and payables balances

21
Q

adjustment to cf from inventory?

A

higher inventory in B/S = cash is decreasing

lower inventory in B/S = cash is increasing

  • adjustments need to be made because net income is impacted by COGS