Statement of Cash Flows and Cash Flow Analysis

These flashcards cover key vocabulary and concepts related to the statement of cash flows, including definitions of various terms, methods, and classifications essential for understanding cash flow analysis in accounting.

Statement of Cash Flows

A financial statement that lists all cash inflows and outflows for a specific period, differentiating between operating, investing, and financing activities.

Operating Cash Flows

Cash flows that result from the normal operations of a business, including revenues from sales and expenses related to production and administrative activities.

Investing Cash Flows

Cash flows related to the purchase or sale of long-term assets, investments, and lending activities.

Financing Cash Flows

Cash flows that result from transactions with the company's owners and creditors, including borrowing, repaying debt, and issuing dividends.

Indirect Method

A method used to prepare the statement of cash flows, which starts with net income and adjusts for non-cash transactions and changes in working capital.

Net Operating Cash Flows

Cash flows from operating activities, calculated by adjusting net income for changes in operating assets and liabilities.

Depreciation Expense

A non-cash expense that reduces net income but is added back when calculating cash flows using the indirect method.

Accounts Receivable

An asset account that represents money owed to a company by its customers for goods or services delivered but not yet paid for.

Current Liabilities

Obligations that a company is expected to settle within one year, affecting cash flows when they increase or decrease.

Accrual Basis Net Income

Net income calculated using the accrual accounting method, recognizing income when earned and expenses when incurred, regardless of cash flow.

Cash Basis Net Income

Net income calculated based on actual cash transactions during the period, reflecting cash inflows and outflows.

Gain on Sale of Asset

A profit that occurs when an asset is sold for more than its carrying or book value, requiring adjustment in cash flow calculations.

Loss on Sale of Asset

A loss that occurs when an asset is sold for less than its carrying or book value, requiring adjustment in cash flow calculations.

Working Capital

The difference between current assets and current liabilities, indicating a company's short-term financial health and liquidity.

Increase in Accounts Payable

An increase in the amount owed to suppliers and creditors, which adds to cash flows during cash flow calculations.

Decrease in Prepaid Rent

A reduction in the asset account for rent paid in advance, impacting cash flows by indicating a cash expenditure.

Cash Flows vs. Net Income

A comparison highlighting the distinction between reported income and actual cash generated, emphasizing the importance of cash availability for operations.

Cash Flow Statement Sections

The cash flow statement is divided into three sections: operating, investing, and financing activities to provide a clear view of cash movements.