CH 22 - Statement of Cash Flows
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42 Terms
22-1
Cash Flow statements give the following information:
Helps financial statement users assess financial _________ and ___________ of a company
Indicates whether a borrower will produce sufficient cash to pay its _______
Indicator of a company’s financial _________ or ability to use cash for ___________ needs and opportunities
Classified as _______, ________ and _________ cash flows
performance and condition
debts
flexibility; unexpected
operating, investing and financing
22-1
Why do we classify cash flows as operating, investing and financing?
Helps financial statement users distinguish between ongoing activity and long-term strategic changes
22-1 — Terms & Def
Operating activities
Not defined as investing or financing, Generally the cash transactions that determine net income (with some exceptions)
22-1 — Terms & Def
Investing activities
making and collecting loans
acquiring and disposing of debt or equity instruments and PPE
22-1 — Terms & Def
Financing activities
Resource from owners and returns to owners
Borrowing money and repaying amounts borrowed
Paying for other resources obtained from creditors or long-term
22-1 — Operating, Investing and Financing
Sale/Purchase of good or services
Operating
22-1 — Operating, Investing and Financing
Refunds of suppliers
Operating
22-1 — Operating, Investing and Financing
Dividends from investments
22-1 — Operating, Investing and Financing
Interest on receivables
Operating
22-1 — Operating, Investing and Financing
Settlement of lawsuit
22-1 — Operating, Investing and Financing
Proceeds/purchase of investments held for resale in a trading account
Operating (Not included in the determination of NI)
22-1 — Operating, Investing and Financing
Salaries and other op. expenses
Operating
22-1 — Operating, Investing and Financing
Income taxes, duties and fines
Operating
22-1 — Operating, Investing and Financing
Interest on liabilities
Operating
22-1 — Operating, Investing and Financing
Sale/purchase of PPE
Investing
22-1 — Operating, Investing and Financing
Sale/investments in debt and equity investments in other companies
Investing (Not included in the determination of NI)
22-1 — Operating, Investing and Financing
Collection of loan (excluding interest)
Investing
22-1 — Operating, Investing and Financing
Loan to other entities
Investing
22-1 — Operating, Investing and Financing
Sale/purchase of patents or other intangible assets
Investing
22-1 — Operating, Investing and Financing
Issuance/reacquiring of company’s own stock
Financing
22-1 — Operating, Investing and Financing
Issuance of bonds or other debt (short-term and long-term)
Financing
22-1 — Operating, Investing and Financing
Sale of Treasury stock
Financing
22-1 — Operating, Investing and Financing
Dividends and other cash distributions to owners
Financing
22-1 — Operating, Investing and Financing
Prinicipal payments on loans, payments to retire bonds or other debt, debt issue costs, and principal payments on finance leases
Financing
22-2 — Indirect method
What’s the missing part?
NI
+ Noncash Expenses and losses
___________________________
- Increase in operating assets (other than cash)
+ Decrease in operating assets (other than cash)
- Decrease in operating liabilities
+ Increase in operating liabilities
± Cash flows classified as operating but not included in net income
———————————————-
= Net cash flows from operating activities
- Noncash revenues and gains
22-2 — Indirect method
What’s the missing part?
NI
+ Noncash Expenses and losses
- Noncash revenues and gains
- Increase in operating assets (other than cash)
+ Decrease in operating assets (other than cash)
__________________________
+ Increase in operating liabilities
± Cash flows classified as operating but not included in net income
———————————————-
= Net cash flows from operating activities
- Decrease in operating liabilities
22-2 — Indirect method
What’s the missing part?
NI
+ Noncash Expenses and losses
- Noncash revenues and gains
- Increase in operating assets (other than cash)
+ Decrease in operating assets (other than cash)
- Decrease in operating liabilities
+ Increase in operating liabilities
____________________________
———————————————-
= Net cash flows from operating activities
± Cash flows classified as operating but not included in net income
22-2 — Indirect method
What’s the missing part?
NI
+ Noncash Expenses and losses
- Noncash revenues and gains
________________________________
+ Decrease in operating assets (other than cash)
- Decrease in operating liabilities
+ Increase in operating liabilities
± Cash flows classified as operating but not included in net income
———————————————-
= Net cash flows from operating activities
- Increase in operating assets (other than cash)
22-2 — Indirect method
What’s the missing part?
NI
+ Noncash Expenses and losses
- Noncash revenues and gains
- Increase in operating assets (other than cash)
_____________________________
- Decrease in operating liabilities
+ Increase in operating liabilities
± Cash flows classified as operating but not included in net income
———————————————-
= Net cash flows from operating activities
+ Decrease in operating assets (other than cash)
22-2 — Indirect method
What’s the missing part?
NI
_________________________
- Noncash revenues and gains
- Increase in operating assets (other than cash)
+ Decrease in operating assets (other than cash)
- Decrease in operating liabilities
+ Increase in operating liabilities
± Cash flows classified as operating but not included in net income
———————————————-
= Net cash flows from operating activities
+ Noncash Expenses and losses
22-2
What are examples of Noncash revenues and gains?
Gain on disposition of fixed asset
Gain on settlement of nonoperating liability
Unrealized gain-income
22-2
What are examples of Noncash Expenses and losses?
Loss on disposition of fixed asset
Despreciation or amortization expense
Stock compensation expense
Loss on settlement of nonoperating liability
Unrealized loss-income
22-2
What are examples of operating assets?
A/R
Supplies
Income tax receivables
Misc. prepaid expenses
Inventory
Prepaid insurance
22-2
What are examples of Operating liabilities?
A/P
Income tax payable
Deferred revenue
Salaries payable
Interest payable
Accrued liabilities
22-2
What are examples of Cash flows not included in net income?
Selling and purchasing investments acquired specifically for resale by banks, brokers and dealers
Notes issued for an operating activity
22-2
What to do with Compensation Expense in cash flows?
No impact on cash
On the cash flow statement: add amount back to net income
22-2
What to do with Unrealized gain or loss—income in cash flows?
No impact on cash
On the cash flow statement:
Add losses to NI
Subtract gains from NI
22-2
What to do with pension expense in cash flows?
No impact on cash
On the cash flow statement:
Pension expense > contributions, add difference to NI
Pension expense < contributions, subtract difference to NI
22-2
What to do with equity investments in cash flows?
No impact on cash
On the cash flow statement:
Investment income > dividends, subtract difference to NI
Investment income < dividends, add difference to NI
22-2
What to do with deferred tax assets and liabilities in cash flows?
On the cash flow statement:
Adjust net income for increases (decreases) in deferred tax accounts
22-5 — Reporting Requirements
Where is the reconciliation of net income to operating cash flows disclosed?
On the face of the cash flow statement or in the notes
22-5 — Reporting Requirements
What must be reported?
Reconciliation of __________ to operating cash flow
Report _______ and _______ inflows and outflows
Disclose interest and _____ ______ ______
Disclose _______ investing and financing transactions
Disclose nature and amounts of ________ cash and cash equivalents
net income
investing and financing
income taxes paid
noncash
restricted