Chapter 13 (Managerial Accountancy)

Cash equivalents

Short-term, highly liquid investments such as Treasury bills, commercial paper, and money market funds, that are made solely for the purpose of generating a return on temporarily idle funds. (p. 617)

Direct method

 A method of computing the net cash provided by operating activities in which the income statement is reconstructed on a cash basis from top to bottom. (p. 618)

Financing activities

These activities generate cash inflows and outflows related to borrowing from and repaying principal to creditors and completing transactions with the company’s owners, such as selling or repurchasing shares of common stock and paying dividends. (p. 618)

Free cash flow

A measure that assesses a company’s ability to fund its capital expenditures and dividends from its net cash provided by operating activities. (p. 634)

Indirect method

A method of computing the net cash provided by operating activities that starts with net income and adjusts it to a cash basis. (p. 618)

Investing activities

These activities generate cash inflows and outflows related to acquiring or disposing of noncurrent assets such as property, plant, and equipment, long-term investments, and loans to another entity. (p. 618)

Net cash provided by operating activities

The net result of the cash inflows and outflows arising from day-to-day operations. (p. 618)

Operating activities

 These activities generate cash inflows and outflows related to revenue and expense transactions that affect net income. (p. 618)

Statement of cash flows

A financial statement that highlights the major activities that impact cash flows and, hence, affect the overall cash balance. (p. 616)