Operating, Investing and Financing Activities Flashcards
What are the major cash inflows from Operating Activities?
a. ) From Customers
b. ) Dividends (from investment)
c. ) Interest
d. Sale of Trading Investments (Not available for sale)
What are the major cash outflows from Operating Activities?
a. ) To suppliers (Goods/Services)
b. ) To Employees (Payroll)
c. ) Interest
d. ) Income Taxes
What two approaches can be used to present the “Cash Flow from Operating Activities” on the SCF?
- ) Direct - Presents operating cash flow by classes of sources and uses
- ) Indirect - Presents operating cash flow by adjusting accrual net income to operating cash flow (called the reconciliation of net income and net operating cash flow)
What do cash inflows and outflows from operating activities relate to?
Income Statement items
Are dividends paid part of operating cash flows?
No, they are financing. Dividends received are part of operating cash flows.
What does the direct method on the SCF for “Cash flow from Operating Activities” present?
1.) The operating cash flows by classes of sources and uses.
2.) The reconciliation of net income and net operating cash flow. The indirect method shows only the reconciliation of net income and net operating cash flow.
The indirect method, therefore, does not report the actual operating cash flows.
What are the major cash inflows from Investing Activities on the SCF?
a. ) Sale of Long-Term assets
b. ) Collection of Loan Principal
c. ) Disposal of Debt and Equity Securities (Held-to maturity and Available for Sale)
d. ) Sale of Other Productive Assets (i.e., patent, but not inventory.)
What are the major cash outflows from Investing Activities on the SCF?
a. ) Purchase of Long-term assets
b. ) Lending (to others)
c. ) Investment in Debt and Equity Securities (Held-to-Maturity and Available-for-sale)
d. ) Purchase of Other productive assets (i.e., Patents, but not inventory.)
Is there a difference between the direct or indirect method of SCF presentation for Financing Activities?
No
What are the major cash inflows from Financing Activites on the SCF?
a. ) Sale of (Own) Stock
b. ) Proceeds from Borrowing (Bonds, Notes, etc.)
What are the major cash outflows from Financing Activities on the SCF?
a. ) Repurchase of (own) stock
b. ) Paying back lenders (Principal only)
c. ) Payment of dividends
How must changes in cash caused by changes in exchange rates be shown on the SCF?
As part of the reconciliation of the change in cash and cash equivalents during the period.
How must foreign currency translations be handled in regards to cash flow on the SCF?
Foreign currency translations that occur during the period and affect cash flow should be converted to their dollar equivalent using (1) Exchange rate in effect at date of each transaction or (2) average exchange rate for period, if not materially different. Cash balances held at year-end should use the spot (current) exchange rate at date of balance sheet
How can noncash activities be reported on the SCF?
1.) A schedule
2.) A footnote
3.) Face of the SCF (Usually at bottom)
Note the noncash activities would not be in the body of the SCF
How do you handle a part cash and part noncash financing or investing activity on the SCF?
The cash portion should be a part of (on the face) of the SCF; the noncash should be disclosed in the Noncash Investing and Financing activities section.
