Term
| What does the statement of cash flows report? |
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Definition
| the cash receipts, cash payments, and net change in cash resulting from operating, investing, and financing activities during a period |
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Term
| What 4 things does the statement of cash flows help asses? |
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Definition
1. The entity's ability to generate future cash flows.
2. The entity's ability to pay dividends and meet obligations
3. the reason for the difference between net income and net cash provided (if positive) or used (if negative) by operating activities
4. The cash investing and financing transactions for the period |
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Term
| What 3 things does the statement of cash flows report? |
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Definition
1. Cash receipts
2. Cash Payments
3. Net change in cash (resulting from operating, investing and financing during the period) |
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Term
| List 3 types of transactions included on the statement of cash flows |
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Definition
1. Operating
2. Investing
3. Financing |
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Term
| What types of activities are included in Operating activities? |
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Definition
| the cash effects of transactions that create revenues and expenses. They thus enter into the determination of net income. |
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Term
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Definition
| (a) acquiring and disposing of investments and property, plant, and equipment, and (b) lending money and collecting the loans |
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Term
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Definition
| (a) obtaining cash from issuing debt and repaying the amounts borrowed, and (b) obtaining cash from stockholders, repurchasing shares, and paying dividends |
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Term
| which section of the statement of cash flows is the most important and why |
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Definition
| the operating section because it is the best indicator of future ability to generate cash |
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Term
| Operating Activities List 2 Inflows of Cash List 5 outflows of Cash |
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Definition
Inflows:
1. sales of goods and services
2. interest and dividends received from investing NOT interest and dividends PAID for financing
Outflows:
1. suppliers for inventory
2. employees for services
3. government for taxes
4. others for expenses |
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Term
| Investing Activities List 3 Inflows of Cash List 3 outflows of Cash |
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Definition
| 1. sale of property, plant, and equipment 2. sale of investments in debt or equity securities of other entities 3. collection of principal on loans to other entities Outflows: 1. purchase property, plant, and equipment 2. purchase investment in debt or equity securities of other entities 3. loans to other entities |
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Term
Financing Activities
List 2 Inflows of Cash
List 2 outflows of Cash |
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Definition
Inflows:
sale of common stock
issuance of long term debt (bonds and notes)
Outflows:
1. to stockholders as dividends
2. redeem long term debt or reacquire capital stock (treasury stock) |
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Term
| Operating Activities involve |
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Definition
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Term
| Investing activities involve |
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Definition
| cash flows resulting from changes in investments and long-term asset items |
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Term
| Financing activities involve |
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Definition
| cash flows resulting from changes in long-term liability and stockholders' equity items |
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Term
| how are receipts of investment revenue (interest and dividends) classified? |
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Definition
| in Operating activities: because these activities are reported on the income statement were results of operations are shown |
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Term
| how are payments of interest to lenders shown? |
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Definition
| as operating activity because they are reported on the income statement were the results of operating activity are reported. |
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Term
| Are non-cash activities reported at the same time as the statement of cash flow? |
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Definition
They are noted/reported on a separate schedule (can be at the bottom of the SCF).
They are not included in the SCF
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Term
| List the 4 types of significant non-cash activities that are reported on a separate schedule with the statement of cash flows? |
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Definition
| 1. Direct issuance of common stock to purchase assets 2. Conversion of bonds into common stock. 3. Direct issuance of debt to purchase assets. 4.Exchanges of plant assets. |
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Term
| Is net income the same as net cash from operating expenses? |
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Definition
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Term
| Why do differences exist between net income and net cash provided by operating activities? |
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Definition
| The differences are explained by differences in the timing of the reporting of revenues and expenses under accrual accounting versus cash. Under accrual accounting, companies report revenues when earned, even if cash hasn't been received, and they report expenses when incurred, even if cash hasn't been paid. |
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Term
| Practice building the statement of cash flow by hand |
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Definition
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Term
| List the order in which the 3 types of cash flow activities are reported on the statement of cash flow |
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Definition
Operating
Investing
Financing |
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Term
| What does the sum of the operating, investing and financing sections of the statement of cash flows equal? |
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Definition
| the net increase or decrease of cash flow for the period. When this amount is added to the beginning cash balance the sum should equal the ending cash balance. You can find ending and beginning cash balances on the comparative balance sheet. |
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Term
| can you prepare a statement of cash flow from a trail balance |
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Definition
| no. the trail balance does not provide enough detail |
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Term
| What three sources are used to prepare a statement of cash flows? |
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Definition
1. Comparative balance sheets
2. current income statement
3. Additional information. Such information includes transaction data that are needed to determine how cash was provided or used during the period |
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Term
| List and explain the 3 steps to preparing the statement of cash flows |
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Definition
1. Determine net cash provided (positive) or used (negative) by operating activities by converting net income from the accrual basis to the cash basis
2. Analyze changes in noncurrent assets and liability accounts and record as investing and financing activities, or disclose (separate schedule) as non-cash activity.
3. Compare the net change of cash on the statement of cash flows with the change in the cash account reported on the balance sheet to make sure the amounts agree. |
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Term
| List the 2 methods that can be used to convert net income from accrual to cash. |
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Definition
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Term
| Describe the Indirect method of converting net income from accrual to cash |
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Definition
| adjusts net income for items that do not affect cash |
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Term
| Why do companies prefer the indirect method of converting net income from accrual to cash? (2 reasons) |
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Definition
1. it is easier and less expensive to prepare.
2. it focuses on the difference from net income and net cash flow from operating activities. |
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Term
| find out what the difference is between the indirect and direct methods |
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Definition
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Term
| What general accounting principal is satisfied by disclosing non-cash activities (either as a separate schedule at the bottom of the SCF or as a separate schedule with the financial statements) |
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Definition
| The full disclosure principal |
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Term
Classify:
Cash received for sale of plant assets |
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Definition
Cash inflow
Investing Activity |
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Term
Classify:
Cash paid for dividends |
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Definition
Cash outflow
Financing Activity |
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Term
Classify:
Conversion of bonds to common stock |
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Definition
No cash effect
Non-cash Activity |
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Term
Classify:
Cash paid for interest |
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Definition
Cash Outflow
Operating Activity |
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Term
Classify:
Cash received from sale of goods |
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Definition
Cash inflow
Operating Activity |
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Term
| To convert net income from accrual to cash basis what 3 adjustments do you make? |
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Definition
add back noncash expenses
deduct gains and add losses
analyze changes to noncash current assets liability accounts |
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Term
| list 3 kinds of noncash expenses |
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Definition
depreciation
amortization
depletion |
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Term
| what kinds of gains and losses are used for adjustment to net income? |
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Definition
| those that result from investing and financing activities |
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Term
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Definition
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Term
| loss or gain on sale of equipment |
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Definition
the effects of these activities need to be removed from net income.
Loss: add back Gain: deduct
(the actual cash received for the sale will be reported in the investing section of the statement of cash flows) |
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Term
| patent amortization expense |
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Definition
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Term
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Definition
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Term
| loss on disposal of plant asset |
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Definition
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Term
| gain on disposal of plant asset |
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Definition
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Term
| increase in current asset account |
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Definition
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Term
| decrease in current asset account |
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Definition
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Term
| increase in current liability account |
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Definition
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Term
| decrease in current liability account |
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Definition
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Term
| SCF Operating activities come from |
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Definition
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Term
| SCF Investment activities come from |
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Definition
| changes in investments and long-term assets (Balance Sheet) |
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Term
| SCF Financing activities come from |
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Definition
| changes in longer-term liabilities and stockholders' equity (Balance Sheet) |
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Term
| the Statement of Cash Flows does not help investors and creditors assess an entity's ability to generate future income |
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Definition
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Term
| Payment of a cash dividend is a financing activity, not an operating activity |
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Definition
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Term
| Declaration of cash dividends is not a cash outflow that companies report as a financing activity. |
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Definition
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Term
| Since depreciation is a noncash expense activity - no cash is spent for this activity, yet it reduces net income, it is added to net income in the operating activities section to reflect actual cash activities |
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Definition
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Term
| DV's Pest Control Products has the following information available: net income, $15,000; cash provided by operations, $21,000; cash sales, $65,000; capital expenditures, $11,000; and dividends paid, $3,000. What is DV's free cash flow |
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Definition
| Free cash flow is defined as cash provided by operating activities less cash used for capital expenditures and cash used for dividends = $21,000 - $11,000 - $3,000 = $7,000 |
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Term
| Blackstone Company has the following information available: Net income, $20,000; Cash provided by operations, $30,000; Cash Sales, $75,000; Capital expenditures, $12,000; and Cash dividends, $6,000. What is Blackstone's free cash flow? |
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Definition
| Free cash flow = Cash provided by operations ($30,000) – capital expenditures ($12,000) – cash dividends ($6,000) = $12,000 |
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Term
| If sales are $130,000, beginning accounts receivable $12,000, and ending accounts receivable $15,000, what is the amount of cash receipts from customers? |
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Definition
| Cash receipts from customers amount to $127,000 ($12,000 + $130,000 - $15,000) |
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Term
| If Sales are $180,000, beginning Accounts Receivable $12,000, and ending Accounts Receivable $18,000, what is the amount of the cash receipts from customers? |
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Definition
| The amount of cash generated by sales is total sales ($180,000) less the increase in accounts receivable ($6,000) or $174,000 |
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Term
Name type of activity
Issued 450,000 par value common stock for cash |
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Definition
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Term
Type of activity:
Purchased a machine for $40,000, giving a long-term note in exchange |
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Definition
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Term
Type of activity:
Issued 200,000 par value common stock on conversion of bonds having a face value of 200,000 |
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Definition
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Term
Type of activity:
declared and paid a cash dividend of 18,000 |
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Definition
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Term
| sold a long-term investment with a cost of 15,000 for 15,000 cash |
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Definition
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Term
| collected 16,000 of accounts receivable |
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Definition
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Term
| paid 18,000 on accounts payable |
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Definition
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Term
| payment of interest on notes payable |
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Definition
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Term
| exchange of land for patent |
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Definition
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Term
| sale of building at book value |
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Definition
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Term
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Definition
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Term
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Definition
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Term
| receipt of dividends on investment in stock |
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Definition
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Term
| receipt of interest on notes receivable |
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Definition
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Term
| issuance of capital stock |
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Definition
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Term
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Definition
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Term
| issuance of bonds for land |
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Definition
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Term
| conversion of bonds into common stock |
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Definition
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Term
|
Definition
| loss in operating. actual proceeds from sale in investing |
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Term
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Definition
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Term
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash (provided or used) by operating activities |
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Definition
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Term
| inventory relationship to operating |
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Definition
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Term
| a/r relationship to operating |
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Definition
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Term
| a/p relationship to operating |
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Definition
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Term
| depreciation expense relationship to operating |
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Definition
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Term
| loss on sale of plant asset relationship to operating |
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Definition
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Term
| gain on sale of plant asset relationship to operating |
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Definition
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Term
| prepaid expense relationship to operating |
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Definition
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Term
| income taxes payable relationship to operating |
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Definition
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