Statement of Cash Flows Vocabulary Flashcards

A comprehensive collection of vocabulary flashcards covering key definitions, classification rules, and calculation formulas from the Statement of Cash Flows topic.

Statement of Cash Flows

A financial statement that provides an analysis of inflows and outflows of cash from/to operating, investing, and financing activities, summarizing the movement of cash and cash equivalents (CCE).

Operating Activities

Activities directly related to the main revenue-producing activities of the company, such as cash received from customers and cash paid to suppliers or employees.

Investing Activities

Cash transactions related to the purchase or sale of non-current assets.

Financing Activities

Cash transactions related to changes in equity and borrowings.

Net Change in Cash

The total amount of increase or decrease in cash for the current period, calculated by combining the cash flows from operating, investing, and financing activities.

Beginning Cash Balance

The balance of the cash account at the start of the accounting period.

Ending Cash Balance

The balance of the cash account at the end of the accounting period, computed using the beginning cash balance plus the net change in cash.

Direct Method

An approach to preparing the operating cash flow section of the statement of cash flows that presents each major class of gross cash receipts and gross cash payments.

Indirect Method

An approach to preparing the operating cash flow section of the statement of cash flows that reconciles net income or loss with total operating cash flows by adjusting for non-cash transactions and changes in working capital accounts.

Receipts from Customers

The cash collections calculated using the formula: $\text{Beginning Accounts Receivable} + \text{Net Sales} - \text{Ending Accounts Receivable}$.

Payments to Suppliers and Employees

The cash disbursements computed using the formula: $\text{Beg. AP} + \text{Beg. ASE (OAE)} + \text{Net Purchases} + \text{SE (OE)} - \text{End AP} - \text{End ASE (OAE)}$.

Accounts Receivable Adjustment (Indirect Method)

An adjustment where a decrease in Accounts Receivable is added to net earnings, and an increase in Accounts Receivable is deducted from net earnings.

Inventory Adjustment (Indirect Method)

An adjustment where an increase in inventory is deducted from net earnings due to cash spent on raw materials, and a decrease in inventory is added to net earnings.

Accounts Payable Adjustment (Indirect Method)

An adjustment where an increase in Accounts Payable from credit purchases from one year to the next is added to net earnings.

Limitations of the Cash Flow Statement

Negative cash flow should not automatically raise a red flag, as poor cash flow may result from a company's strategic decision to expand its business at a specific point in time.