Koofers

Chapter 23- Statement of Cash Flows - Flashcards

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Class:ACCT 316 - Intermediate Accounting II
Subject:Accounting
University:University of Delaware
Term:Fall 2011
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      Mode:   CARDS LIST       ? pages   PRINT EXIT
Statement of Cash Flows Provides information about company's cash receipts and payments during period
  1. Operating Activities- determination of net income (current assets and current liabilities)
  2. Investing Activities- long term assets
  3. Financing Activities- long tern liability and equity

Asses entity's ability to generate future cash flows, pay dividends and obligations

Operating Activites Best measure of company's ability to generate enough cash to continue as a going concern
Income Statement Items
Cash Inflows:
  • Sales of goods or services
  • Returns on loans (interest) and on securities (dividends)
Cash Outflows:
  • Suppliers for inventory
  • Employees for services
  • Government for taxes
  • Lenders for interest
  • Others for expenses
Investing Activities Long-Term Asset Items
Cash Inflows:
  • Sales of property, plant, and equipment
  • Sale of debt or equity securities of other entities
  • Collection of principle on loans to other entities
Cash Outflows:
  • Purchase property, plant, and equipment
  • Purchase debt or equity securities of other entities
  • Make loans to other entities
Financing Activities Long-Term Liability and Equity Items
Cash Inflows:
  • Sale of equity securities
  • Issuance of debt (bonds and notes)
Cash Outflows:
  • Stockholders as dividends
  • Redeem long-term debt or reacquire capital stock
Generated by Koofers.com
Format of Statement of Cash Flows Cash flows from operating activities
   Net Income
   Adjustments to reconcile NI to net cash provided by operating
   (List of individual items)
   Net cash provided/used by operating activities
Cash flows from investing activities
   (List of individual items)             
   Net cash provided/used by investing activities
Cash flows from financing activities
   (List of individual items)              
   Net cash provided/used by financing activities               
Net increase/decrease in cash
Cash at beginning of period                                                  
Cash at end of period

Preparing Statement of Cash Flows
  1. Determine Change in Cash- difference between beginning and ending balance of cash on balance sheet
  2. Determine Net Cash Flow from Operating- current income statement, comparative balance sheets, other data
  3. Determine Net Cash Flows from Investing and Financing- other changes in balance sheet
Net Cash Flow from Operating Accrual basis of accounting- record revenues when earned and expenses when incurred
  • must determine revenues and expenses on cash basis
  • eliminate effects of income statement transactions that do not result in a change in cash
Direct Method Income Statement Method- encouraged by FASB
Reports difference between cash receipts and cash disbursements as net cash flow from operations

Cash collected from revenues
- Cash payments to suppliers
- Cash payments for operating expenses   
Income before income taxes
- Cash payments for income taxes              
Net cash provided by operating activities
Generated by Koofers.com
Indirect Method Reconciliation Method- most widely used in practice
Adjusts net income for items that affected reported net income but not cash
  • adds back non-cash charges and deducts non-cash credits

  1. Non-Cash Expenses- depreciation and amortization
  2. Accounting Gains/Losses: Gain (-) Loss (+)
  3. Working Capital Accounts: CA and CL move in opp. direction
A/R begin. = A/R end. + Revenues - Cash Receipts
Change in A/R = Revenue - Cash Receipts
5 Direct Method Sections Cash Receipts from Customers = Sales Revenue + decr. in A/R
                                                                                            -  incr. in A/R

Cash Payments to Suppliers = CGS + incr. in Inventory + decr. in A/P
                                                                   - decr. in Inventory - incr. in A/P

Cash Payments for Op. Exp. = Op. Exp. + incr. PPD + decr. Accrued
                                                                       - decr. PPD - incr. Accrued

Cash Payments for Int. = Int. Exp. + Amort. of Prem. + decr. Payable
                                                             - Amort. of Disc. - incr. Payable

Cash Payments for Taxes = Tax Exp. + decr. in DTL + decr. Payable
                                                                    - incr. in DTL - incr. in Payable
                

Significant Non-Cash Transactions NOT put into Statement of Cash Flows
  • Acquisition of assets by assuming debt or issuing equity
  • Exchanges on non-monetary assets
  • Conversion of convertible securities
  • Refinancing of debt
  • Retirement of debt by issuance of equity
Formulas
R/Eend = R/Ebegin + NI - Dividends Declared
NI = ^R/E + Dividends Declared

Deprec. Exp = ^A/D + A/D on Disposition

G/L on Sale = Selling Price - Book Value

^A/R = year2(A/R - Allowance) - year1(A/R - Allowance)

Purchase of PPE = ^PPE + Dispositions - NonCashExpenditure
Generated by Koofers.com
Cash Flows from Operating Activities Net Income
Adjustments
   Depreciation Expense
   Amortization Expense
   Gain on Sale
   Loss on Sale
   Accounts Receivable
   Other Current Assets
   Accounts Payable
   Other Current Liabilities
Supplemental Disclosures Cash Paid For:
   Interest
   Taxes

Significant Non-Cash Expenditures:
   Issuance of Note for PPE
   Issuance of Common Stock for N/P
Generated by Koofers.com

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 Statement of Cash FlowsProvides information about company's cash receipts and payments during period
  1. Operating Activities- determination of net income (current assets and current liabilities)
  2. Investing Activities- long term assets
  3. Financing Activities- long tern liability and equity

Asses entity's ability to generate future cash flows, pay dividends and obligations

 Operating ActivitesBest measure of company's ability to generate enough cash to continue as a going concern
Income Statement Items
Cash Inflows:
  • Sales of goods or services
  • Returns on loans (interest) and on securities (dividends)
Cash Outflows:
  • Suppliers for inventory
  • Employees for services
  • Government for taxes
  • Lenders for interest
  • Others for expenses
 Investing ActivitiesLong-Term Asset Items
Cash Inflows:
  • Sales of property, plant, and equipment
  • Sale of debt or equity securities of other entities
  • Collection of principle on loans to other entities
Cash Outflows:
  • Purchase property, plant, and equipment
  • Purchase debt or equity securities of other entities
  • Make loans to other entities
 Financing ActivitiesLong-Term Liability and Equity Items
Cash Inflows:
  • Sale of equity securities
  • Issuance of debt (bonds and notes)
Cash Outflows:
  • Stockholders as dividends
  • Redeem long-term debt or reacquire capital stock
 Format of Statement of Cash FlowsCash flows from operating activities
   Net Income
   Adjustments to reconcile NI to net cash provided by operating
   (List of individual items)
   Net cash provided/used by operating activities
Cash flows from investing activities
   (List of individual items)             
   Net cash provided/used by investing activities
Cash flows from financing activities
   (List of individual items)              
   Net cash provided/used by financing activities               
Net increase/decrease in cash
Cash at beginning of period                                                  
Cash at end of period

 Preparing Statement of Cash Flows
  1. Determine Change in Cash- difference between beginning and ending balance of cash on balance sheet
  2. Determine Net Cash Flow from Operating- current income statement, comparative balance sheets, other data
  3. Determine Net Cash Flows from Investing and Financing- other changes in balance sheet
 Net Cash Flow from OperatingAccrual basis of accounting- record revenues when earned and expenses when incurred
  • must determine revenues and expenses on cash basis
  • eliminate effects of income statement transactions that do not result in a change in cash
 Direct MethodIncome Statement Method- encouraged by FASB
Reports difference between cash receipts and cash disbursements as net cash flow from operations

Cash collected from revenues
- Cash payments to suppliers
- Cash payments for operating expenses   
Income before income taxes
- Cash payments for income taxes              
Net cash provided by operating activities
 Indirect MethodReconciliation Method- most widely used in practice
Adjusts net income for items that affected reported net income but not cash
  • adds back non-cash charges and deducts non-cash credits

  1. Non-Cash Expenses- depreciation and amortization
  2. Accounting Gains/Losses: Gain (-) Loss (+)
  3. Working Capital Accounts: CA and CL move in opp. direction
A/R begin. = A/R end. + Revenues - Cash Receipts
Change in A/R = Revenue - Cash Receipts
 5 Direct Method SectionsCash Receipts from Customers = Sales Revenue + decr. in A/R
                                                                                            -  incr. in A/R

Cash Payments to Suppliers = CGS + incr. in Inventory + decr. in A/P
                                                                   - decr. in Inventory - incr. in A/P

Cash Payments for Op. Exp. = Op. Exp. + incr. PPD + decr. Accrued
                                                                       - decr. PPD - incr. Accrued

Cash Payments for Int. = Int. Exp. + Amort. of Prem. + decr. Payable
                                                             - Amort. of Disc. - incr. Payable

Cash Payments for Taxes = Tax Exp. + decr. in DTL + decr. Payable
                                                                    - incr. in DTL - incr. in Payable
                

 Significant Non-Cash TransactionsNOT put into Statement of Cash Flows
  • Acquisition of assets by assuming debt or issuing equity
  • Exchanges on non-monetary assets
  • Conversion of convertible securities
  • Refinancing of debt
  • Retirement of debt by issuance of equity
 Formulas
R/Eend = R/Ebegin + NI - Dividends Declared
NI = ^R/E + Dividends Declared

Deprec. Exp = ^A/D + A/D on Disposition

G/L on Sale = Selling Price - Book Value

^A/R = year2(A/R - Allowance) - year1(A/R - Allowance)

Purchase of PPE = ^PPE + Dispositions - NonCashExpenditure
 Cash Flows from Operating ActivitiesNet Income
Adjustments
   Depreciation Expense
   Amortization Expense
   Gain on Sale
   Loss on Sale
   Accounts Receivable
   Other Current Assets
   Accounts Payable
   Other Current Liabilities
 Supplemental DisclosuresCash Paid For:
   Interest
   Taxes

Significant Non-Cash Expenditures:
   Issuance of Note for PPE
   Issuance of Common Stock for N/P
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