Fin ACC Chapter 4&5

Statement of Cash Flows

provides information about cash receipts and cash payments

When is the statement of cash flows required?

when the balance sheet an income statement are presented

Cash equivalents

short term, highly liquid investments that are readily convertible to cash in 3 months or less.

What does the SCF help assist in?

future profitability, liquidity, and long term solvency.

Operating Cash Flows

day to day business operations and activities that generate regular revenue, like inventory. (current assets and liabilities, or everything on an income statement)

Investing Cash Flow

buying or selling long term assets and investments

Financing Cash flow

transactions involving long term liabilities, debt, and owners equity

Direct Method of Cash flows

lists actual cash received and cash paid during the period (such as cash collected from customers minus cash paid to supplies and employees)

Indirect Method of cash flows

starts with net income and reconciles it to actual cash flow by adding back non cash expenses (like depreciation) and adjusting for changes in working capital (like accounts receivable and payable)

Why is dividends received classified as an operating activity?

because they relates to net income and investment returns

Why is dividends paid classified as an financing activity?

because they represent a return of capital to the companys own equity holders.

Interest

amount of money paid or received of amount borrowed or lent

Monetary Asset

claim to receive a fixed amount of money. Cash and most receivables

compound interest

interest calculated on invested amount plus accumulated interest

Simple interest

computed by multiplying an invested amount by the interest rate

annuity

a series of equal sized cash flows

PV of a single amount

amount of money required today that is equivalent to a given future amount

Annuity due

first cash flows occurs on the first day of the agreement

FV of a single amount

the amount of money that a dollar will grow to

ordinary annuity

first cash flow occurs one period after agreement begins

Effective rate or yeild

the rate at which money will actually grow during the year

nonmonentary asset

items on a companys balance sheet that has no fixed dollar amount attached or a determinable amount of money. EX: PPE, Inventory, Intanglible assets, and equity investments

Time value of money

money can be invested today and grow to a larger amount

monetary liability

obligation to pay a sum of cash, the amount of which is fixed. Notes Payable

Depreciation

spreading the cost of a tangible asset (machinery, buildings, equipment)

Amoritization

spreading the cost of intangible assets