Chapter 6: Statement of Cash Flow

Vocabulary-style flashcards covering the purpose, classification, definitions, and methods of the Statement of Cash Flows based on Chapter 6 lecture notes.

Statement of Cash Flows

A report that summarizes the changes in cash over a period of time and explains these changes through operating, investing, and financing activities (OIF).

Cash Equivalents

Items readily convertible to a known amount of cash with a maturity to the investor of $3$ months or less, including commercial paper, money market funds, and treasury bills.

Operating Activities

Cash effects of transactions and events relating to trading activities, generally involving current assets (CA) and current liabilities (CL), such as acquiring and selling products.

Investing Activities

Activities that involve acquiring and disposing of fixed assets (FA) and loans to and from other entities.

Financing Activities

Activities involving the issue of share and various forms of debt (debentures), their repurchase or repayment, and items relating to long term liabilities (LTL) or shareholders’ equity.

Capital Expenditures

Cash paid for plant and equipment, categorized under investing activities.

Non-cash items

Items such as depreciation, bad debts provisions, and profits/losses on sales of assets that require adjustment to net profit when calculating cash flow.

Direct Method (Gross)

A method of reporting operating cash flows by analyzing cash and bank accounts to report major sources of cash receipts and cash payments.

Indirect Method (Net)

A method that calculates net cash flow from operating activities by adjusting net profit for non-cash items, accruals, and deferrals.

Bonds

A certificate given to a bondholder, associated with financing activities.

Cash Outflow Examples

Includes losses, purchase of fixed assets, increase in inventory, increase in accounts receivable, drawings/dividends paid, loans repaid, and decrease in accounts payable.

Cash Inflow Examples

Includes profits, sales of fixed assets, decrease in inventory, decrease in accounts receivable, capital introduced, loans received, and increase in accounts payable.