Ch 12 : Reporting Cash Flows Key Terms

Vocabulary flashcards covering key financial and accounting terms related to the statement of cash flows.

Cash flow on total assets

Ratio of operating cash flows to average total assets; not sensitive to income recognition and measurement; partly reflects on earnings quality.

When does a net cash inflow (source) occur?

When the receipts in a category exceed payments

When does a net cash outflow (use) occur?

When the payments in a category exceed the receipts

Direct method

Presentation of net cash from operating activities for the statement of cash flows that lists major operating cash receipts less major operating cash payments.

Financing activities

Transactions with owners and creditors that include obtaining cash from issuing debt, repaying amounts borrowed, and obtaining cash from or distributing cash to owners.

Indirect method

Presentation that reports net income and then adjusts it by adding and subtracting items to yield net cash from operating activities on the statement of cash flows.

Investing activities

Transactions that involve purchasing and selling long-term assets; includes making and collecting notes receivable and investments in other than cash equivalents.

What do investing activities include?

1. the purchase and sale of investments

2. lending and collecting money for notes receivable

Operating activities

Activities that involve the production or purchase of merchandise and the sale of goods or services to customers, including expenditures related to administering the business.

What are some examples of operating activities?

production and purchase of inventory, the Sal of goods and services to customers, and the expenditures to operate the business.

Statement of cash flows

A financial statement that lists cash inflows (receipts) and cash outflows (payments) during a period; arranged by operating, investing, and financing.

What are cash flows separated into?

Operating, Investing, and Financing Activities

What do cash flows help users decide?

Whether a company has enough cash to pay its debts and also help evaluate a company’s ability to pursue opportunities.

How do managers use cash flow information?

To plan day-to-day operations and make long-term investment decisions

What do cash flows include?

cash and cash equivalents

What does the statement of cash flows explain?

The difference between the beginning and ending balances of cash and cash equivalents

A cash equivalent has which two criteria?

1. be readily convertible to a known amount of cash

2. be sufficiently close to its maturity so it’s market value is unaffected by interest rate changes

What does the statement of cash flows help answer?

• What explains the change in the cash balance?

• Where does a company receive its cash?

• How does a company receive its cash?

• Why do income and cash flows differ?