Statement of Cashflow

Question 1

Operating activities

Answer 1

CASH INFLOWS
- From sale of goods or services
- From returns on loans (interest  received) and on equity securities (dividends received)
CASH OUTFLOWS
- To suppliers for inventory
- To employees for services
- To governments for taxes
- To lenders for interest
- To others for expenses

Question 2

Investing activities

Answer 2

CASH INFLOWS
- From sale of capital assets
- From sale of investments (debt or equity securities of other entities)
- From collection of principal on loans to other entities
CASH OUTFLOWS
- To purchase capital assets
- To purchase investments (debt or equity securities of other entities)
-To make loans to other entities

Question 3

Financing activities

Answer 3

CASH INFLOWS
- From sale of equity securities (company’s own stock)
- From issuance of debt (bonds and notes)
CASH OUTFLOWS
- To shareholders as dividends
- To redeem long-term debt

Question 4

Concepts for the Statement of Cash Flows

Answer 4

The accrual concept is not used in the preparation of a statement of cash flows.
Deals with cash receipts and payments
Requires detailed information concerning the changes in account balances that occurred between two periods of time.

Question 5

Sources to prepare Statement of Cash Flows

Answer 5

1. Comparative balance sheet
   - Information in this statement indicates the amount of the changes in assets, liabilities, and shareholders’ equity from the beginning to the end of the period.
2. Current income statement
   - Information in this statement helps the reader to determine the amount of cash provided, or used, by operations during the period.
3. Additional information
   - Includes transaction data that are needed to determine how cash was provided or used during the period.

Question 6

Preparing the statement of cash flows

Answer 6

1. Determine the net increase/decrease in cash
   - Difference between the beginning and ending cash balances computed from comparative balance sheets
2. Determine net cash provided/used by operating activities
   - The current year’s income statement and the comparative balance sheet and other selected additional data
3. Determine net cash provided/used by investing and financing activities.
   - The comparative balance sheet data and selected additional information