Flashcards in Sources and Uses of Cash Deck (13):
Is Statement of Cash Flows a required statement under U.S. GAAP?
Yes, required if a company reports a balance sheet and income statement
What is the basic purpose of the Statement of Cash Flows (SCF)?
To provide information about the cash receipts and cash payments for an entity to help investors, creditors, and others assess:
-Past ability to general and control cash inflows and outflows
-Probable future ability to generate cash inflows sufficient to meet future obligations and pay dividends
-The likely need for external borrowing
Does the SCF provide information other than Cash inflows and outflows?
Yes, certain financing activities such as acquiring a major long-term asset by incurring a liability
What does the SCF explain?
The change in cash (and cash equivalents) between the beginning and end of the reporting period on the BS
What are cash equivalents?
1.) Short term, highly liquid investments
2.) Readily convertible to known amounts of cash
3.) Sufficiently close to maturity so that the risk of changes in value due to changes in interest rate is insignificant
When are Investments considered cash equivalents?
When their original maturity is 3 months or less (i.e., T-bills, Money Market funds)
-A T-bill purchased when there are 3 months left in its term is a cash equivalent. A T-bill purchased when there are 4 months left in its term does not become a cash equivalent after holding it one month.
Is a change in policy for designating cash equivalents a change in accounting principle?
What categories must the SCF report information from?
a.) Net cash inflow or outflow from Operating Activities
b.) Net cash inflow or outflow from Investing Activities
c.) Net cash inflow or outflow from Financing Activities
d.) Effects of Foreign Currency Translation
e.) Reconciliation of net cash inflows/outflows (sum of items listed above) with the reported change in cash and cash equivalents on the BS
f.) Non-cash Investing and Financing Activities
What order should the items be presented on the Statement of Cash Flows?
Should be in the OIFF (Oh If-I could only remember)
d.) Foreign Currency
Should the disclosure of noncash investing and financing activities be on the Face of the SCF?
No, it should be reported on a separate schedule
What two formats can be used for the SCF?
Indirect and Direct
What is the only real difference between the Direct and Indirect methods of the SCF?
The operating activity section. Direct reports the actual operating cash flows. The indirect reports the reconciliation of net income and net operating cash flow in the operating section.