Cash Flow Claims

Question 1

2 reasons why accounting earnings is different from finance cashflows

Answer 1

1. Accrual acctng requires u to record transactions as they happen not as you get paid.
   2.operating and financing expenses are deducted from revenues to get earnings but not capital expenses.

Question 2

an accounting method where revenue or expenses are recorded when a transaction occurs vs. when payment is received or made

Answer 2

Accrual Accounting

Question 3

An operating expense is an expense that a business incurs through its normal business operations.

Answer 3

Operating expense

Question 4

3 types of accounting expenses

Answer 4

operating, capital, financing

Question 5

3 steps in getting from acctng earnings to cash flows

Answer 5

1. Add back any non-cash expenses ( depreciation)
2. Subtract capital expenses
3. Subtract change in noncash capital

Question 6

in converting earnings to cashflow, resulting cashflows is always higher than the earnings

Answer 6

False, resulting cashflows can be higher, close or lower

Question 7

2 types of contractually set cash flow claims and their differences

Answer 7

1. Constant- example is a bank loan or company bond
2. Variable- time of commitment is already set up but amount will vary depends on the variable.