Untitled Flashcards Set

Cash Equivalents

Short-term investments with original maturities of three months or less that are readily convertible to cash.

Operating Activities

Cash inflows and outflows directly related to earnings from normal operations.

Investing Activities

Cash inflows and outflows related to the acquisition or sale of productive facilities and investments in the securities or other companies.

Financing Activities

Cash inflows and outflows related to external sources of financing such as owners and creditors.

Net Increase (Decrease) in Cash

The combination of net cash flows from operating, investing, and financing activities.

Quality of Income Ratio

Measures how much cash each dollar of net income generates.

Free Cash Flow

Cash Flow from Operating Activities minus Dividends and Capital Expenditures.

Capital Acquisitions Ratio

Reflects the portion of purchases of property, plant, and equipment financed from operating activities.

Indirect Method

A method of reporting cash flows from operating activities that adjusts net income for non-cash transactions.

Change in Accounts Receivable

If accounts receivable increases, cash collected is less, necessitating a subtraction from net income; if it decreases, cash collected is more, necessitating an addition.

Change in Inventory

If inventory increases, purchases exceed sales, so it is subtracted from net income; if it decreases, sales exceed purchases, so it is added.

Change in Prepaid Expenses

If prepaid expenses increase, cash prepayments exceed expenses, so it is subtracted from net income; if they decrease, expenses exceed prepayments and it is added.

Change in Accounts Payable

If accounts payable increases, cash payments are less than purchases on account, so it is added to net income; if it decreases, it is subtracted.

Change in Accrued Expenses

If accrued expenses increase, cash paid is less than accrued expenses, so it is added; if they decrease, it is subtracted.

Net Cash Flow from Financing Activities

Cash inflow or outflow resulting from transactions related to financing, such as loans and dividends.