Topic 8 - Statement of Cash Flows Flashcards
Why is a statement of cash flows useful?
Define the terms cash and cash equivalents.
What are the three different components of the statement of cash flows?
Statement of cash flows can follow two different methods:
What are the additional disclosure requirements in a cash flow statement?
What are the two ways we can identify cash flows?
Identify direct cash outflows and inflows.
What are some examples of cash flows from operating activities?
What are some examples of cash flows from investing activities?
What are some examples of cash flows from financing activities?
Explain why the information in the statement of cash flows is important for financial statement users.
Determine whether the statement of cash flows or the statement of comprehensive income can be manipulated more easily and explain your decision.
A cash flow statement is a financial report that describes the sources of a company’s cash and how that cash was spent over a specified time period.
It does not include non-cash items such as depreciation. This makes it useful for determining the short-term viability of a company, particularly its ability to pay bills.
The management of cash flow is crucial for businesses.
The cash flow statement is similar to the income statement in that it records a company’s performance over a specified period of time.
The difference between the two is that the income statement also takes into account some non-cash accounting items such as depreciation.
The cash flow statement strips away all of this and shows exactly how much actual money the company has generated.
Cash flow statements show how companies have performed in managing inflows and outflows of cash.
It provides a sharper picture of a company’s ability to pay creditors, and finance growth.
Unlike the many ways in which reported earnings can be presented, there is little a company can do to manipulate its cash situation.
Barring any outright fraud, the cash flow statement tells the whole story.
The company either has cash or it does not.
Analysts will look closely at the cash flow statement of any company in order to understand its overall health.
Explain the difference between profitability and liquidity of an entity.
Explain the key differences between the statement of cash flows and the income statement.
Determine if the impact of accounting policy choices that are made by the managers of a reporting entity is more likely to impact the income statement or the cash-flow statement, and provide a detailed explanation for your answer.
Explain the difference between cash flow from operating activities and cash flow from investing activities.
