Rule #3 - Cash Flow Statement - Accounting Guide Flashcards

Q: What does the Cash Flow Statement show?

A: How the company’s cash actually changed during a period — what came in and what went out.

Q: Why is the Cash Flow Statement important?

A: It shows real cash movement, not just accounting profits.

Q: What are the 3 main sections of the Cash Flow Statement?

A:

1. Operating Activities

2. Investing Activities

3. Financing Activities

Q: What is Cash Flow from Operating Activities (CFO)?

A: Cash from the core business — includes Net Income, non-cash items, and working capital changes.

Q: What is Cash Flow from Investing Activities (CFI)?

A: Cash from buying or selling long-term assets like equipment or investments.

Q: What is Cash Flow from Financing Activities (CFF)?

A: Cash from issuing or repaying debt, issuing stock, or paying dividends.

Q: What does the Cash Flow Statement start with?

A: Net Income (from the Income Statement).

Q: What are non-cash items?

A: Accounting entries like Depreciation and Amortization that don’t involve actual cash.

Q: What happens when a company buys equipment?

A: It appears as a negative number in Cash Flow from Investing (uses cash).

Q: What happens when a company borrows money?

A: It appears as a positive number in Cash Flow from Financing (brings in cash).

Q: If Net Income is $100, but cash only increased $40, what happened?

A: Non-cash items or working capital changes reduced the cash.

Q: Can a company be profitable and still run out of cash?

A: Yes — if too much cash is tied up in inventory or investments.