cash flow statement

Question 1

cash

Answer 1

cash in hand and checking accounts

Question 2

Cash equivalents

Answer 2

short-term, highly liquid investments (treasury bills, commercial papers, money market funds)

Question 3

set of financial statements

Answer 3

1. Balance sheet (statement of financial position) (static view)
2. The income statement (dynamic view of business activity)
   1 + 2 = 3. Statement of cash flows

Question 4

Goal of the statement of cash flows

Answer 4

• primary purpose: provide info about the company’s cash receipts and cash payments during a period
• secondary purpose: provide cash-basis info about the company’s operating, investing, and financing activities

Question 5

Cash flow statement provides info about:

Answer 5

1. to assess a company’s ability to generate future cash flows
2. to assess a company’s ability to pay dividends and meet various contractual obligations.
3. To assess the difference between net income and net cash flow generated from operating activities
4. To assess the cash and non-cash investing and financing transactions during the period.

Question 6

3 types of cash flows

Answer 6

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

Question 7

change in cash =

Answer 7

cash from operating operations + cash from investments + cash from financing

Question 8

classification: interest paid

Answer 8

OPE

Question 9

classification: interest received

Answer 9

OPE

Question 10

classification: dividends paid

Answer 10

Fin

Question 11

Classification: dividends received

Answer 11

OPE

Question 12

Classification: taxes paid

Answer 12

OPE

Question 13

3 documents you need to prepare CF STATEMENTS

Answer 13

Balance sheet, income statement, selected transactions

Question 14

CF statement : Step 1 :

Answer 14

determine change in cash

Question 15

CF statement : Step 2 : what are the two options

Answer 15

To determine the CFO (cash flow from operating activities):
- CFO = cash revenues - cash expenses (direct method)
- CFO = NI + non-cash expenses - [non-cash revenues] (indirect)

Question 16

what about the direct method?

Answer 16

• only major classes of operating cash receipts and cash payments are reported.
• advantage: more consistent with the objective of the cash flow statement
• disadvantage: suggest that net cash flow from operating activities is a better measure of performance than accrued-based income.

Question 17

direct or indirect or nothing (for ope): gain on asset sale

Answer 17

indirect

Question 18

direct or indirect or nothing for (ope): increase decrease in cash flow

Answer 18

nothing

Question 19

direct or indirect or nothing for ope: increase in dividend payable

Answer 19

nothing

Question 20

direct or indirect or nothing for ope: cash paid for income taxes

Answer 20

direct

Question 21

direct or indirect or nothing for ope: cash paid for interest expense

Answer 21

direct

Question 22

direct or indirect or nothing for ope: increase in income tax payable

Answer 22

indirect

Question 23

direct method: cash paid to customers

Answer 23

Sales revenue
+ decrease in acc. receivable
+ increase in unearned revenue
- increase in acc. receivable
- decrease in unearned revenue

Question 24

direct method: cash paid to suppliers

Answer 24

COGS
+ increase in inventory
+ decrease in acc. payable
- decrease in inventory
- increase in acc. payable

Question 25

direct method: cash paid for operating expense

Answer 25

operating expense + increase in prepaid expense +decrease in accrued expense payable (e.g wages) - decrease in prepaid expense - increasee in accrued expense payable

Question 26

Compute ending balance on share capital 2021

Answer 26

beg balance + share issued 2021 = ending capital

Question 27

formula for net income

Answer 27

net income 2021 = net cash from operations + change in current non-cash operating assets - change in operating liabilities - depreciation - amortization - loss on asset sale + gain on asset sale

Question 28

how to compute the change in current non-cash operating assets

Answer 28

add up the changes in inventory, receivables, prepaid expenses, devidend receivables

Question 29

how to compute the change in current liablitites

Answer 29

Add up the changes in acc. payable, unearned revenue, and interest payable.

Question 30

how to compute the ending balance on retained earnings in 2021

Answer 30

ending balance retained earnings 2021 = beginning balance retained eanings 2020 + net income 2021 - dividend for 2021 - dividend for 2021

Question 31

How to compute the ending balance for cash in 2020

Answer 31

beg balance cash 2021 = ending balance cash 2021 - net cash flow from operations in 2021 - net cash flow from investing activities in 2021 - net cash flow from financing activites

Question 32

how to compute inflow from issuing debt 2021

Answer 32

inflow from issuing debt 2021 = retained earnings (2021-2020) + short-term note payable (2021 -2020)

Question 33

how to compute outflow from payments to debtholders in 2021

Answer 33

outflow from payments to debtholders in 2021 = bonds (2020-2021)

Question 34

how to compute ending balance in dividend payable 2020

Answer 34

ending balance in dividend payable 2020 = inflow from issuing debt in 2021 - outflow from payments to debtholders in 2021 - net cash flow from financing activities in 2021