Indirect Cash Flow Method

Question 1

What is a Cash Flow Statement?

Answer 1

A financial statement that summarizes a business’s cash inflows and outflows over a period of time.

Question 2

What are the two methods of preparing a Cash Flow Statement?

Answer 2

Comparison vs Direct Method.

Question 3

What is the Accrual Basis of Accounting?

Answer 3

Revenues are recognized when earned, and expenses are incurred.

Question 4

What is the Indirect Method in a Cash Flow Statement?

Answer 4

A method that begins with ‘Net Profit / Loss’ from the income statement.

Question 5

What is the first step in calculating Cash Flow from Operating Activities using the Indirect Method?

Answer 5

Add back non-cash expenses such as depreciation and amortization.

Question 6

What is the second step in calculating Cash Flow from Operating Activities?

Answer 6

Adjust for gain/loss on sale of non-current assets and movement in working capital.

Question 7

What does Working Capital equal?

Answer 7

Current Assets - Current Liabilities.

Question 8

What is included in Cash Flow from Investing Activities?

Answer 8

Purchase of plant, property & equipment and cash receipts from sale of PPE.

Question 9

What is included in Cash Flow from Financing Activities?

Answer 9

Proceeds from long-term borrowings.

Question 10

What does the Cash Flow Statement reconcile?

Answer 10

Net increase/decrease in cash for the period.

Question 11

What are the opening and closing cash amounts in a Cash Flow Statement?

Answer 11

Opening cash as at MMM-DD-YYYY and closing cash as at MMM-DD-YYYY.