Lesson 8 (Statement of Cash Flows)

Question 1

shows the changes in cash for the same period of times as that covered by the income statement and shows all inflows and outflows of cash
what is this ?

Answer 1

statement of cash flows

Question 2

how does the statement of cash flows differ from the other major financial statements ?

Answer 2

other financial statements are based on accrual accounting while the cash flow statement simply shows all the increases and decreases in cash

Question 3

the cash inflows and outflows categorizes as these 3 possible activities ?

Answer 3

1. operating activities
2. investing activities
3. financing activities

Question 4

section of the statement of cash flows that involves income statement items
what is this ?

Answer 4

operating activities

Question 5

which income statment item does not have a cash effect ?

Answer 5

depreciation

Question 6

*cash from sales of goods or services
*cash from returns on loans (interest received) and on equity securities (dividends received)
which activity is this ?

Answer 6

operating activities cash inflows

Question 7

*cash to suppliers
*cash to employees for services
*cash to government for taxes
*cash to lenders for interest
*cash to others for expenses
which activity is this?

Answer 7

operating activites cash outflows

Question 8

section of cash flows that involves investments, P-P-E, and intangibles
what is this?

Answer 8

investing activities

Question 9

*cash from sales of property, plant, and equipment
*from sale of investments in other entities
*from collection of principle on loans to other entities (NOTE: the interest received would be considered an operating activity since it would effect net income)
which activity is this ?

Answer 9

investing activities cash inflows

Question 10

*to purchase property, plant, and equipment
*to purchase investments in other entities
*making loans to other entities
which activity is this ?

Answer 10

investing activities cash outflows

Question 11

section of the statement of cash flows the involve all interest bearing liabilities (both Current and long term) and stockholders equity items
what is this ?

Answer 11

financing activities

Question 12

*cash from sale of companies own stock to its stockholders
*from borrowing money (ie, bank loan
which activity is this ?

Answer 12

financing activities cash inflows

Question 13

*cash to stockholders as dividends
*to creditors as then repayment of principle of funds borrowed (NOTE: the interest payment would be considered an operating activity since it would effect net income )
which activity is this ?

Answer 13

financing activities cash outflows

Question 14

what’s the major purpose of the operating activities section of the cash flow statement is to ?

Answer 14

convert net income from an accrual basis to a cash basis

Question 15

operating activities section of the statement of cash flows can be presented in two different ways ?

Answer 15

1. direct method 2. indirect method
   *both methods arrive at the same total amount for net cash provided (used) by operating activities
   *the methods differ in disclosing the items that make up the total amount

Question 16

involves listing each specific cash flow
which operating activity method is this ?

Answer 16

direct method of operating activities

Question 17

starts with net income and makes a series of adjustments to convert the accrual net income into cash net income
which operating activity method is this ?

Answer 17

indirect method

Question 18

1. for each item on the income statement, determine a corresponding balance sheet account (i.e., sales revenue on the income statement will match up with accounts receivable on the balance sheet)
2. for these balance sheet accounts, draw a t-account and analyze it to determine the cash effect of the income statement item
   what process is this ?

Answer 18

the process to follow in calculating net cash provided by operating activities using the direct method

Question 19

not all accounts on the income statement have a cash effect. in other words, we have some revenues and expenses which do not result in an inflow or outflows of cash
what are the three examples of non cash revenues and expenses ?

Answer 19

1. depreciation expense
2. losses
3. gains
   these items are ignore when using the direct method to calculate net cash flows from operating activites

Question 20

to determine the cash paid for inventory purchases you need to analyze both ?

Answer 20

both the inventory and accounts payable t-accounts

Question 21

do not include what on the operating activities indirect method of cash flows ?

Answer 21

cash, investments, notes payable

Question 22

a company should have a positive or negative cash flow provided by operating activities ?

Answer 22

positive cash flow for operating activities

Question 23

a company should have a positive or negative cash flow from investing activities ?

Answer 23

negative cash flow from investing activities

Question 24

a company should have a positive or negative cash from from financing activities ?

Answer 24

can be either positive or negative cash flow from financing activities

Question 25

_____ activities that do not affect cash are reported in either a separate schedule at the bottom of the statement of cash flows or in the notes to the financial statements
what is this ?

Answer 25

significant non cash activities

Question 26

*issuance of common stock to purchase assets
*conversion of bonds into common stock
*issuance of debt to purchase assets
*exchanges on long lived assets
these are examples of what ?

Answer 26

significant non cash activities

Question 27

What are the 3 cash flows for investing activities ?

Answer 27

1. P-P-E
2. Investments
3. Intangibles