Ch 22 FINAL Flashcards
(28 cards)
What is the first step in preparing a Statement of Cash Flows using the direct method?
Determine the change in cash using comparative financial position (balance sheet) statements.
What is the second step in preparing a direct method SCF?
Record information from the income statement and convert from accrual to cash basis.
How does an increase in accounts receivable affect the direct method SCF?
It reduces cash flow from customers, so the increase is subtracted.
How does an increase in accounts payable affect cash flow in the direct method?
It increases cash flow because less cash was paid to suppliers; subtract from purchases.
ow is issuance of common shares recorded in the SCF?
a financing activity – it’s a cash inflow.
If retained earnings increase by $20,000 and net income is $34,000, what does it indicate?
A dividend of $14,000 was paid in cash.
What is the final step in preparing a direct method SCF?
Combine all cash flows and ensure the net change in cash matches the difference from the balance sheets.
: What is the starting point for the indirect method SCF?
Net income from the income statement.
What types of items are added back to net income in the indirect method?
Non-cash expenses such as depreciation and amortization.
How are gains on asset sales treated in the indirect method?
ubtracted from net income because they are non-cash gains.
How does an increase in inventory affect cash flow in the indirect method?
It reduces cash flow from operations and is subtracted.
How does a decrease in accounts payable affect operating cash flow?
It reduces cash flow and is subtracted in the reconciliation.
How are dividends paid classified in the indirect method?
As financing activities (under both IFRS and ASPE).
What must both IFRS and ASPE disclose in the SCF?
Significant non-cash transactions, restricted cash, and cash-to-balance-sheet reconciliations.
What additional disclosures does IFRS require compared to ASPE?
ore detail on income taxes, interest/dividends, and restrictions on cash.
hy are non-cash investing and financing activities disclosed?
To provide a complete picture of financial activities that don’t affect cash immediately.
Under IFRS, how should interest paid be disclosed?
It must be classified and disclosed clearly, often under operating or financing.
How do IFRS and ASPE define the indirect method presentation?
As a reconciliation of net income (or profit/loss under IFRS) to cash from operating activities.
Under IFRS, how might companies start their cash flow statement?
With income before tax or before interest and tax.
What must be reported on a gross basis under both IFRS and ASPE?
sh inflows and outflows from investing and financing activities.
What is the first step in analyzing a Statement of Cash Flows?
Review subtotals of the three activity sections and the overall change in cash.
What does operating cash flow indicate?
Whether customer receipts can cover operating expenses like suppliers and payroll.
What advantage does the direct method offer when analyzing cash flow?
More detailed information on the specific sources and uses of cash.
What’s the goal of interpreting operating cash flows?
.
A: To assess sustainability and whether cash flows are repeatable
