Week 5

Question 1

Outlfow vs inflow

Answer 1

Outflow is money going out of th business
Inflow is money coming into the business

Question 2

what does scf show

Answer 2

CF shows the sources and uses of cash during the period. –

Question 3

Statement of Cash Flows splits activities that affect cash into three categories:

Answer 3

1. Cash Flows from Operations
2. Cash Flows from Investing
3. Cash Flows from Financin

Question 4

What goes on operating,financing ?

Answer 4

– Interest and Dividends Received are Operating
– Interest Paid is Operating
– Dividends Paid are Financing

Question 5

What goes on investing activites

Answer 5

Cash Flows From Investing Activitis

Includes Four Activities:
– Acquiring Property, Plant, & Equipment, Intangibles, and
Natural Resources for cash
– Disposing of Property, Plant, & Equipment, Intangibles, and
Natural Resources for cash
– Acquiring Investments (Companies and Securities) for cash
– Disposing of Investments (Companies and Securities) for cash

Question 6

What goes on finacning activties?

Answer 6

Includes:
– Issuing short-term and long-term debt to financial
institutions and debt investors for cash
– Retiring short-term and long-term debt to financial
institutions and debt investors for cash
– Issuing stock for cash
– Retiring stock for cash
– Payment of cash dividends

Question 7

Direct vs indirect method and when to use them

Answer 7

Use idnriect for operating and use DDirect methof for inveting and financing

Direct method:

Directly record cash inflows and outflows for the period
All non cash are ignroed

Indirect method:
– Reconciliation of Net Income to Cash Provided by Operating Activities. Net income is onverted to a cashflow

The indirect method uses net income as the base and converts the income into the cash flow through adjustments. The direct method only takes the cash transactions into account and produces the cash flow from operations.

Question 8

Direct method and inirect method Guideline

Answer 8

Indirect method:
Net income

Adjust for non cash and non operating transactions

Then that will give you NET cash flow from operations

Direct method:

Cash received from operating sources

Cash paid for operating resources

Net chas flow from operations

Question 9

Indirect method proces

Answer 9

1) Items that Affected Net Income, but had No Cash Effects
– Add Back Depreciation
– Add Back Amortization

2) Items that Affected Both Net Income AND Cash, but not from an
Operating Activity

– Subtract Gains on Sale of PP&E and Other Investing Assets
– Add Back Losses on Sale of PP&E and Other Investing Assets

3)
Operating Items for which Income Effect differs from Cash Flow
Effect (non-cash current assets and current liabilities)

– Add increases in current liabilities and decreases in current assets

– Subtract increases in current assets and decreases in current liabilities