ACC 313 Cash Flows

What type of statement is a cash flow statement?
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Terms in this set (53)
What type of statement is a cash flow statement?
Period Statement, Period in Time
What did the statement of cash flows used to be called?
Statement of Changes in Financial Position
What did the statement of changes in financial position show?
Yearly changes in the cash account, what caused the yearly change in the total amount of working capital
The statement of changes in financial position was prepared far more often on the basis of what?
Working capital
Who is required to have a statement of cash flows?
All financial enterprises that present both a balance sheet and an income statement
When is a statement of cash flows required?
Each period covered by an income statement
What specific places are required to have a statement of cash flows?
Banks and financial institutions, small businesses, and nonprofits and governmental entities
What is this statement prepared on the basis of?
Cash and cash equivalents
What are the requirements concerning cash equivalents?
All enterprises must disclose their policies concerning what is a cash equivalent; cash equivalents must be shown on the same line as "cash" on the balance sheet; the purchase and sale of cash equivalents are part of cash management, they will not be shown on the statement of cash flows
What does the statement of cash flows show?
Where cash came from during the period, what cash was used for during the period, what the change in cash and cash equivalent was for the period
What does the statement of cash flows help the user assess?The enterprises ability to generate positive future net cash flows, the enterprises ability to meet future obligations, its ability to pay dividends, its needs for external use. The reasons for the differences between net income and the associated cash receipts and cash payments for the accounting periodWhat is a secondary purpose of a statement of cash flows?Provide information about the investing and financing activities during an accounting period, including financial and nonfinancial informationWhat does the statement of cash flows give the user the ability to assess?LiquidityWhat are some limitations of the statement of cash flows?Historically-based, not future based. Users want to know the future cash flows. If the statement is made using cash-basis, there is some room for manipulation, just like there is for Net Income.Why did the name change from Statement of Changes in Financial Position to Statement of Cash Flows?Accrual accounting is far removed from cash flows and users want to see the future ability to generate cash. Financial statements do not account for inflation, users want to see the successes and failures of an entity throughout the period. It is a more concrete standard. Working capital does not provide information on liquidity and financial flexibility as the cash basis does. Management and short term creditors need this information to assess the entities ability to meet cash operating needs.What type of cash flow classifications involve the cash effects of transactions that enter directly into the determination of net income.OperatingWhat type of cash flow classification includes lending money and collecting on loans, acquiring and disposing of ______ and productive long-lived assetsInvestingWhat type of cash flow classification includes obtaining cash from creditors and repaying the amounts borrowed and obtaining capital from owners providing them with a return on their investment, and returning their investment through the retirement of stockFinancingExamples of Operating InflowsCash received from the sale of goods or services. Cash received from returns on loans (interest), debt investments (interest) and equity investments (dividends)Examples of Operating OutflowsCash paid to suppliers for inventory. Cash paid to employees for services rendered. Cash paid to governmental units for taxes. Cash paid to lenders for interest. Cash paid to others for expenses.Examples of Investing InflowsCash received from sale of pp&e. Cash received from the sale of debt or equity securities of another entity. cash received from the collection of principal on a loan that was madeExamples of Investing OutflowsCash paid to pp&e. Cash paid to purchase the debt of equity securities of another entity. Cash paid to make a loan to others.Examples of Financing InflowsCash received from the sale of the entity's own equity securities. Cash received from the issuance of debt (bonds and notes. Cash received as a result of any other forms of borrowing.Examples of Financing OutflowsCash paid to shareholders as dividends. Cash paid to redeem (retire) debt. Cash paid to reacquire equity as treasury stock or to retire.What method of handling changes in accounts is required?Gross Method. Two purchases of equipment can be combined into the single investment activity. Purchase and sale can not be combined.Is there a possibility that purchasing equipment could be an operating activity?Yes, IF the equipment is going to be used for a short period of time, it should be treated like inventory.What is an example of a non cash transaction that is both investing and financingThe acquisition of land (investing) through the issuance of common stock (financing)Proper reporting of noncash transactions on the statement of cash flowsNOT shown in the body. Must be disclosed either in a footnote to the financial statement or in a supporting schedule at the bottom of the Statement of Cash Flows. THESE HAVE TO BE REPORTED AT THE BOTTOM OF THE STATEMENT OF CASH FLOWS IN THIS CLASSWhy does the operating section begin with Net Income?The assumption is that when a journal entry is made, whatever happened to Net Income happened to cash as well. When this is not the case an adjustment has to be made to net income.Is the direct method required?NOPE. Encouraged.When using the direct method, what kind of declarations are made?Straightforward; Cash Collected from Customers, Cash Paid to SuppliersHow would you get proper dollar figures to show for cash paid to suppliers for inventory using the direct method?Take the reported Cost of Goods Sold, on the income statement and adjust it for the period change in "Merchandise Inventory" (To get purchases) and the period changes in "Accounts Payable" and Trade Notes Payable (to get Cash paid for Purchases)How would you get proper dollar figures fire cash collected from customers using the direct method?Take the reported Sales on the income statement and adjust it for the period change in Accounts Receivable, Trade Notes Receivable, and Unearned SalesWhat are the minimum requirements that must be reported using the direct method when certain operating activities cannot be combined?- Cash collected from customers, including lessees, licensees, and the like. - Interest and dividends received - Other Operating Cash Receipts - Cash paid to employees and other supplers of goods or services, including suppliers of insurance, advertising, and the like - Interest paid - Income taxes paid - Other operating cash paymentsIs the indirect method of computing cash flows required?You betIf the direct method is being used in the body of the "Statement of Cash Flows" the indirect method must be shown where?The supporting schedule as a reconciliation of the direct method.If the indirect method is being used to prepare a Statement of Cash Flows, Cash flows from Operating Activities" can be shown in what two ways?- In the body of the Statement of Cash Flows - A single line "Cash flows from operating activities, shown in the body with a reconciliation shown as a supporting scheduleWhat is the objective of the indirect method?Begin with Net Income and adjust this amount for all items that affected net income, but did not affect cash the same.What are some examples of common additions to net income using the indirect method?- A decrease in trade receivables for the period - A decrease in merchandise or supplies inventory for the period - A decrease in prepaid expenses for the period - An increase in trade payables for the period - An increase in accrued liabilities for the period - Depreciation expense for the period - Amortization of intangible assets for the period - The period amortization of a discount on bonds payable or notes payable - The period amortization of a premium on notes receivable or investment in bonds - Losses that occurred during the periodWhat are some examples of common deductions from net income using the indirect method- An increase in trade receivables for the period - An increase in merchandise or supplies inventory for the period - An increase in prepaid expenses for the period - A decrease in trade payables for the period - A decrease in accrued liabilities for the period - The period amortization of a premium on bonds payable or notes payable - The period amortization of a discount on notes receivable or investment in bonds - Gains that occurred during the periodAre enterprises required or encouraged to break down the changes to individual accounts such as the change in accounts receivable account and the change in the trade notes receivable accountEncouragedWhat information is needed to prepare the statement of cash flows?- Comparative balance sheets- information indicates the amounts of the change in assets, liabilities, and equities from the beginning to ending period - Current income statement- helps determine the cash provided or used for operating activities during the period - Selected Transaction Data- obtained from general ledger, provides additional detailed info to determine how cash was provided or used during the periodWhen should the statement of cash flows be properly prepared?Once you have explained the the change in every balance sheet accountIn the direct method, what is done with depreciation and amortization on the statement of cash flows?NothingIn the indirect method, what is done with depreciation and amortization on the statement of cash flows?-All depreciation and almost all of amortization must be reported back to Net Income because these items reduce net income without having any effect on cash. - Amortization of a premium on bonds payable or notes payable and the amortization of a discount on notes receivable or investment in bonds are exceptions because they are deducted from Net Income since they increase net income without having any effect on cash.What happens to gains and losses using the direct method?NothingWhat happens to gains and losses using the indirect method?These must be taken out of Net Income by subtracting out the gains and adding back the losses since the transaction itself is an investing or financing activity and the entire amount of the cash flow is shown in the investing or financing activities sectionAre the declaration of dividends, stock dividends, and stock splits included in the statement of cash flows?Hell nahWhat happens with bad debts using the direct write off method using the direct approach?NOTHINGWhat happens with bad debts using the direct write off method using the direct approach?The write off is added back to the Net Income because the write-off decreased net income without having any effect on cashWhat happnes to the write off of an account receivable using the allowance method using the direct and indirect mehtod?NOTHINGWhat happens to the period-ending adjusting entry using the allowance method of accounting for bad debts for the direct method?NOTHINGWhat happens to the period-ending adjusting entry using the allowance method of accounting for bad debts for the indirect method?This can either be added back to Net Income or subtracted from Net Income because the adjustment can either decrease or increase net income without doing anything to cash