Ch 12 flashcards

Statement of Cash Flows

A financial statement that reports cash receipts, cash payments, and net change in cash resulting from operating, investing, and financing activities.

Usefulness of the Statement of Cash Flows

Provides information to assess an entity’s ability to generate future cash flows, pay dividends, meet obligations, and differences between net income and cash provided by operating activities.

Cash Flows Classification

Categorization of cash flows into operating, investing, and financing activities.

Indirect Method

A method to prepare the statement of cash flows that adjusts net income for changes in balance sheet accounts to derive net cash provided by operating activities.

Operating Activities

Cash effects of transactions that enter into determining net income.

Investing Activities

Cash effects related to the acquisition and disposal of long-term assets and investments.

Financing Activities

Cash effects of transactions with the company’s owners and creditors, including issuing stock and borrowing.

Noncash Activities

Significant financial activities that do not involve cash, such as issuing stock for assets or converting debt to equity.

Free Cash Flow

Net cash provided by operating activities minus capital expenditures and dividends, indicating cash available for additional investments.

Direct Method

A method for preparing the statement of cash flows that reports major classes of cash receipts and payments directly.

Knowledge Check

Brief review questions designed to test understanding of the lesson's material.

Checklist for Cash Flows

A systematic approach to ensure all inflows and outflows are accurately recorded in the statement of cash flows.

Comparative Balance Sheets

Financial statements that show the changes in assets, liabilities, and stockholders’ equity over a specified period.

Capital Expenditures

Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings, or equipment.

Cash Equivalents

Short-term, highly liquid investments that are easily convertible into cash.

Accrual Accounting

An accounting method that recognizes revenues and expenses when they are incurred, regardless of when cash is actually exchanged.

Operating Income

Income generated from normal business operations, excluding any income derived from investments or sales of assets.

Depreciation Expense

An accounting method of allocating the cost of tangible assets over their useful lives.

Net Increase in Cash

The total change in cash and cash equivalents over a specified period, resulting from all activities.

Cash Burn Rate

The rate at which a company uses up its cash reserves to fund operations, often used by startups.

Product Life Cycle

The progression of a product through introduction, growth, maturity, and decline phases.

Corporate Life Cycle

The stages a corporation undergoes from inception to closure, which impacts its cash flow.