Lecture 7 - Statement of Cash Flows Flashcards Preview

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Flashcards in Lecture 7 - Statement of Cash Flows Deck (27)
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1
Q

SoCF

A

reports how entire firm’s ops, investing, & financing activities have affected cash balances during period

2
Q

“Cash”

A

= actual cash + marketable securities with maturities of 3 months or less

3
Q

Why does NI sometimes not equal Cash?

A

bc NI is calculated w/accrual acct

4
Q

CF from financing: categories

A

obtaining debt (acting as a borrower)
paying of principal related to debt
issuing or repurchasing stock
paying dividends

5
Q

CF from investing: categories

A

purchasing/selling longer-term productive assets (equip)
purchasing/selling investment securities (stocks & bonds)
lending (providing loans)

6
Q

Direct method

A

analyze all transactions affecting cash account; group transactions into common activities and report how these activities affected cash

7
Q

Indirect method

A

reconcile NI to CF from ops by accounting for non-cash and/or non-operating items embedded in accounting NI

8
Q

___ expenses that were taken to NI but didn’t reduce cash balance

A

ADD (ex. depreciation)

9
Q

___ decreases in non-cash assets

A

ADD (ex. inventories, receivables)

10
Q

___ increases in payables and other related liabilities

A

ADD

11
Q

___ losses on sales of assets

A

ADD

12
Q

___ increases in non-cash assets

A

SUBTRACT (ex. inventories, receivables)

13
Q

___ decreases in payables and other related liabilities

A

SUBTRACT

14
Q

___ gains on sales of assets

A

SUBTRACT

15
Q

Δ cash =

A

= NI + Depr - Gain (loss) on Sale of PPE - Δother CA + ΔCL
- Purchase of PPE + Cash from Sale of PPE
+ Δ PIC + Δ LT Debt - DIV

16
Q

Why add Depr. exp?

A

NI was reduced, but cash was not

this is a non-cash expense

17
Q

Why add increases in payables?

A

+ΔCL
an increase in payables means we hoard cash
this decreases NI, but does not change cash
ex. Salary Exp 1000
Salaries Payable 1000
add $1000

18
Q

Why subtract decreases in payables?

A

+ΔCL
a decrease in payables means we expend cash
this does not alter NI, but decreases cash
ex. A/P 1000
Cash 1000
add -$1000

19
Q

Why subtract increases in non-cash assets?

A

-Δother CA
ex. A/R 1000
Sales 1000
subtract $1000 (increases NI, but does not change cash)

ex. Inventory 2500
Cash 2500
subtract $2500 (does not alter NI, but decreases cash)

20
Q

Why add decreases in non-cash assets?

A

-Δother CA
ex. Cash 1000
A/R 1000
subtract -$1000 (= +$1000) (didn’t change NI, but incr. cash)

ex. Cash  2500
              Sales  2500
      COGS  2000
              Inventory 2000
subtract -$2000 (= +$2000) (NI increases by 500, Cash increases by 2500)
21
Q

Calculating Gain/Loss

A

Amount Received - Book Value

Amount Received - (Amount paid - Accumulated Depr.)

22
Q

Why subtract gain on asset sales?

A

Subtract gains on asset sales to avoid double counting the transaction in both ops and investing section) and to make sure all CF related to asset sales are in INVESTING section

ex. purchased for 10,000; accum depr of 9200, sold for 1K
Cash 1000
Accum Depr 9200
Gain on Equip sales 200
Equipment 10,000
record 1000 in CF from investing; since NI reports 200 gain, subtract 200 to avoid double counting in ops

23
Q

Why add losses on asset sales?

A

Add losses on asset sales to avoid double counting the transaction (in both ops and investing) and to make sure all CF related to asset sales are in INVESTING section

ex. purchased for 10,000; accum depr of 8800, sold for 1K
Cash 1000
Accum Depr 8800
Loss on Equip 200
Equip 10,000
record 1000 in CF from investing; since NI reports 200 loss, add back 200 to avoid double counting in ops

24
Q

Cash receipts of interest and dividends are reported as ____ activities

A

Operating

even though lending money & buying securities is investing…

25
Q

Cash payments of interest are reported as ___ activities

A

Operating

even though borrowing money is financing…

26
Q

Cash payments of dividends are reported as ___ activities

A

Financing

27
Q

What if you purchase inventory on account?

A

this would cause incr in non-cash asset, but also increase a payable –> zero net effect