Statement of Cashflow Flashcards
What is the statement of cashflow?
This is simply a statement that provides in-depth information about an entity’s cash payments and receipts during a reporting period.
What are the 3 sections of the cash flow statement?
There is Operating, Investing & Financing activities.
What purpose do each of the 3 sections of cash flow serve?
Operating Activities - Cash flows from normal business operations.
Investing Activities - Cash flows from investing in yourself and others.
Financing Activities - Cash flows from issuing and repaying debt or equity.
What does the Indirect method of preparing the operating activities section of the statement of cash flows do?
The Indirect method of preparing the operating activities section of the statement of cash flows reconciles net income (NI) to net cash flows from operations. That is non cash expenses (eg. amortization of a bond discount) that reduced NI are added back during the reconciliation.
How are transactions involving the purchase and sale of cash equivalents treated?
Transactions involving the purchase and sale of cash equivalents are not reported on the statement of cash flows; however, cash equivalents are included in the cash balances listed.
What happens when accrual-based interest expense is converted to cash basis?
When accrual-based interest is converted to cash basis, the changes to interest payable and the unamortized bond discount or premium must be considered. Simply increase the expense for a decrease in the interest payable and for any amortized bond premium. Then decrease the expense for an increase in interest payable and for any amortized bond discount.
Under the indirect method where are adjustments made?
Adjustments are made to net income to determine net cash flows from operating activities under the indirect method on the statement of cash flows. These adjustments include the change in B/S operating accounts(eg. A/R) and non cash operating items on the I/S(eg. depreciation).
What are the categories of Investing activities?
Some examples of investing activities are:
- Collection of principal on loans made by entity.
- Acquisition and disposal of long-term assets(eg. PP&E, intangibles, AFS debt securities, HTM securities)
- Proceeds from a corporate-owned life insurance policy.
- Major repairs (capitalized) to plant or equipment.
What are the categories of Financing activities?
What is the comparison between the cash basis & accrual basis accounting?
Cash basis recognizes revenues and expenses when cash is received or paid.
Accrual basis recognizes revenues when earned and expenses when incurred.
What are examples of supplementary disclosures for the statement of cash flows?
Operating activities -
- Interest and income taxes paid(if indirect method used)
- Schedule reconciling net income to cash flow from operations(if direct method used)
- Cash equivalent policy
- Restriction on cash and cash equivalents
Noncash investing and financing activities
- Converting debt to equity
- Converting preferred stock to common stock
- Acquiring right-of use asset in exchange for lease liability
- Exchanging a long-term asset for another long-term asset
- Noncash portion of an investing or financing activity
What do supplementary disclosures in the SCF do?
This ensures that the users of the statement have sufficient information about the following:
- the financial accounts(eg company’s cash equivalents policy)
- any restrictions affecting the accounts (eg pledged receivables)
- A summary of the non cash transactions affecting investing and financing activities.
How is a cash flow from the sale of equipment reported as?
In the statement of cashflows, a cash inflow from the sale of equipment is typically reported as an investing activity in an amount equal to the proceeds from the sale. This means the cash inflow equals the carrying value of the equipment plus any gain or less any loss on disposal.
What is the cash to accrual conversion formula for A/R & Accrued Expenses?
Cash receipts - Cash payments
+ Ending A/R - Beg. A/R
