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Flashcards in F7: Statement of Cash Flows Deck (39):
1

Purpose of the Statement of Cash Flows:

-To provide info about the sources of cash and uses of cash and cash equivalents
-To know why cash has changed

2

3 types of cash flows on the statement:

1- Operating Cash Flows
2- Investing Cash Flows
3- Financing Cash Flows

3

Operating Cash Flows

-Cash receipts & disbursements from current assets and current liabilities
-Excluding notes payable and current portion of LT debt--those are included in financing cash flows

4

Investing Cash Flows

-Cash receipts & disbursements from noncurrent assets

5

Financing Cash Flows

-Cash receipts & disbursements from debt & equity
-Debt includes noncurrent liabilities

6

What is NOT disclosed under US GAAP?

Cash flow amounts per share

7

What is one more item that is presented on the statement of cash flows?

-Information about material noncash events

8

The statement of cash flows reconciles what?

-The change in cash for the period
-(the change in cash from the beginning balance on the balance sheet to the ending balance on the balance sheet)

9

Cash equivalents definition

Liquid investments 3 months or less

10

Bank overdrafts treatment: GAAP vs IFRS

GAAP- excludes from cash; classified as financing cash flows
IFRS- cash may include

11

Summarized Statement Format

Net cash- operating activities
+ Net cash- investing activities
+ Net cash- financing activities
= Net increase (decrease) in cash
+ Cash & equivalents at beginning of year
= Cash & equivalents at end of year

12

2 Ways to prepare Statement of Cash Flows

1- Direct method
2- Indirect method

13

Both GAAP & IFRS encourage the use of which method?

Direct

14

What is the most-commonly used method?

Indirect

15

What sections are the same regardless of method used?

-Investing
-Financing

16

What is the only section affected when deciding between direct or indirect method?

-Operating

17

Direct Method definition

Major classes of cash receipts and disbursements are presented in their gross amounts and totaled to arrive at "net cash flow" provided by operating activities

18

What is required if using Direct Method by US GAAP?

A reconciliation of net income to net cash flows from operating activities required in a separate schedule

19

Is this extra direct method requirement required under IFRS?

No

20

Assets have a _______ relationship with cash

Inverse
-If assets up, you bought, so cash outflow
-If assets down, you sold, so cash inflow

21

Debt & equity have a _______ relationship with cash

Direct
-If liabilities up, you're borrowing, so cash inflow
-If liabilities down, you're paying, so cash outflow

22

10 Categories included under Direct Method

(1-5 are inflows; 6-10 are outflows)
1- Cash received from customers
2- Interest received
3- Dividends received
4- Other operating cash receipts (settlements, etc)
5- Cash received from sale of trading securities
6- Cash paid to suppliers and employees
7- Interest paid
8- Income taxes paid
9- Cash paid to acquire trading securities
10- Other operating payments (rent, insurance, utilities)

23

Formula for Cash Received from Customers

Revenues
+- Change in AR
+- Change in Unearned Revenue
= Cash received from customers

24

Formula for Cash Paid to Suppliers

COGS
+- Change in Inventory
+- Change in AP
= Cash Paid to Suppliers

25

Formula for Cash Paid to Employees

Salaries and Wages Expense
+- Change in Wages Payable
= Cash Paid to Employees

26

How to use Indirect Method

Net income is adjusted to arrive at net cash flows from operating activities

27

What is additionally required when using this method?

Supplemental disclosure of cash paid for interest and income taxes

28

Indirect Method: Formula for finding cash flow from core business

NI per IS
+ Depreciation and amortization of bond discount
+ "Losses"
- "Gains" and amortization of bond premium
- Equity earnings
+- Change in Operating assets
+- Change in Operating liabilities
= Cash Flow generated from core business

29

For the exam: easy way to remember 85% of the adjustments made to the operating activities section under the indirect method:

"CLAD"
-Current assets & liabilities
-Losses & gains
-Amortization and depreciation
-Deferred items

30

Investing activities have a _______ relationship with cash

Inverse
-If investing up, we're buying, so cash outflow
-If investing down, we're selling, so cash inflow

31

Financing activities have a _______ relationship with cash

Direct
-If financing up, cash inflow
-If financing down, cash outflow

32

Noncash Investing and Financing Activities- how to present

Should be provided separately in a supplemental disclosure

33

Examples of noncash investing and financing activities

- Purchase of fixed asset with issuance of stock
- Conversion of bonds to equity
- Acquiring assets through a capital lease agreement
- Exchange of one noncash asset of another

34

Thing to remember about IFRS reporting requirements

IFRS allows more flexibility, whereas GAAP rules are very rigid

35

Interest received: GAAP vs IFRS

GAAP: CFO
IFRS: CFO or CFI

36

Interest paid: GAAP vs IFRS

GAAP: CFO
IFRS: CFO or CFF

37

Dividends received: GAAP vs IFRS

GAAP: CFO
IFRS: CFO or CFI

38

Dividends paid: GAAP vs IFRS

GAAP: CFF
IFRS: CFO or CFF

39

Taxes paid: GAAP vs IFRS

GAAP: CFO
IFRS: CFO or CFI or CFF