Chapter 11 - Statement of Cash Flows

These flashcards cover essential vocabulary and concepts related to the statement of cash flows, including cash flow activities, methods of preparation, and key financial analysis metrics.

Statement of Cash Flows

A financial statement that explains the change in cash for the period by classifying cash transactions as operating, investing, or financing activities.

Cash Flow Activity Types

The three classifications of cash flow activities are operating activities, investing activities, and financing activities.

Indirect Method

A method to prepare the statement of cash flows that starts with accrual-basis net income and adjusts to calculate cash-basis net income.

Direct Method

A method of preparing the statement of cash flows that lists cash inflows and outflows directly, relating them to operational activities.

Noncash Activities

Investing and financing activities that do not affect cash, such as purchasing equipment by issuing a note payable.

Cash Flow Analysis

Examining the statement of cash flows to assess liquidity, financial stability, and profitability, often using ratios.

Operating Activities

Cash transactions that relate to revenue and expense activities, typically found on the income statement.

Investing Activities

Cash transactions involving long-term assets and current investments, such as buying or selling property, plant, and equipment.

Financing Activities

Cash transactions with creditors and shareholders, including borrowing and repaying debts, issuing stock, and paying dividends.

Reconciliation

The process of adjusting net income in the indirect method to arrive at net cash flows from operating activities.

Cash Return on Assets

A measure that indicates the amount of cash flow generated for each dollar invested in assets.

Accrual-Basis vs. Cash-Basis Accounting

Accrual-basis accounting recognizes income and expenses when they are incurred, while cash-basis accounting recognizes them when cash is exchanged.