Week 12 Key Concepts

Question 1

Objectives of F/S:

Answer 1

1) Income statement - access the profitability (flow measures reporting the evolution)
2) Balance sheet - snapshot of financial position (asset, liabilities, and shareholders’ equity)
3) Cash flow statement (flow measures built using changes in balances from the Balance
Sheet – stock measures – and reported amounts in the Income statement – flow measures)
a) how did the company manage cash. Explain changes in cash balance: Opening balance
(Cash) + Additions for the period - Deductions for the period = Ending balance of cash
b) show details of cash receipts and cash payment under operating activities (main operation, captured in current assets and current liabilities), investing activities (noncurrent assets) and financing activities (long-term liabilities and equities)

Question 2

Cash and cash equivalents:

Answer 2

Cash equivalents are the short-term, highly liquid investments that
firms acquire with cash in excess of their immediate needs eg T-bills, commercial paper, and money market funds. Cryptocurrencies are not Cash.

Question 3

Cash conversion cycle:

Answer 3

how long it takes the business to sell their inventory stock and collect
receivables, minus the time it takes to pay their payables on average

Question 4

Free Cash Flow:

Answer 4

cash available from operations after paying for investments in fixed assets

Question 5

Operating activities:

Answer 5

transactions and events that constitute its operating activities. Reflect the
changes in the balances of Current Assets and Current Liabilities accounts.

Question 6

Investing activities:

Answer 6

A firm’s transactions involving any changes in long-term assets. Reflect the
changes in balances of Non-Current Assets accounts.

Question 7

Financing activities:

Answer 7

A firm’s transactions when it issued shares, reacquired shares, paid
dividends, borrowed / repaid long-term loan eg bonds payable. Reflect the changes in balances of
Non-Current Liabilities and Shareholders Equity accounts.

Question 8

eBook End of Chapter 12 – Activities recommended
Problem 02 (direct method) and 03 (indirect method)
Problem 10

Answer 8

eBook End of Chapter 12 – Activities recommended
Problem 02 (direct method) and 03 (indirect method)
Problem 10