Intermediate 1

Cash Flow Statement

A financial statement that reconciles cash basis to accrual basis accounting to report cash generated and used by a business.

Cash Equivalents

Short-term, highly liquid investments (such as CDs, 3-month treasury bills, and money market funds) treated as cash on financial reports.

Operating Activities section

The cash flow section reporting cash transactions involved in producing and delivering goods and services, including Net Income adjustments and changes in current assets/liabilities.

Investing Activities section

The cash flow section reporting cash received or paid from purchases and sales of long-term assets such as PPE, investments, and intangibles.

Financing Activities section

The cash flow section reporting cash transactions involving long-term liabilities and equity, including borrowing, repaying debt, issuing stock, purchasing treasury stock, and paying dividends.

Difference between Direct and Indirect Methods

They differ only in the presentation of cash flows from operating activities; investing and financing activities are presented identically under both methods.

Indirect Method rule for Current Assets

Subtract increases in current assets from Net Income, and add decreases in current assets.

Indirect Method rule for Current Liabilities

Add increases in current liabilities to Net Income, and subtract decreases in current liabilities.

Direct Method formula for Cash Collected from Customers

$$\text{Sales Revenue} + \text{Beginning A/R} - \text{Ending A/R}$$

Direct Method formula for Cash Paid to Suppliers

$$\text{COGS} - \text{Beginning Inventory} + \text{Ending Inventory} + \text{Beginning A/P} - \text{Ending A/P}$$