Chapter 13: Statement of Cash Flows

Flashcards reviewing the Statement of Cash Flows, including its purpose, structure, and methods for preparation.

What does the statement of cash flows report?

A company’s cash inflows and outflows for a period.

List the three types of cash flow activities.

Operating, investing, and financing activities.

What is the focus of cash flows from operating activities?

Cash flows from transactions that affect the net income of the company.

What is the focus of cash flows from investing activities?

Cash flows from transactions that affect investments in the noncurrent assets of the company.

What is the focus of cash flows from financing activities?

Cash flows from transactions that affect the debt and equity of the company.

What two methods can companies use for reporting cash flows from operating activities?

The direct method and the indirect method.

Which method reconciles the differences between net income and net cash flows from operations?

The indirect method.

What section reports cash inflows and outflows related to changes in a company’s long-term assets?

Cash flows from investing activities.

What section reports cash inflows and outflows related to changes in a company's long-term liabilities and stockholders' equity?

Cash flows from financing activities.

Where are transactions that indirectly affect cash flows reported?

In a separate section of the statement of cash flows.

In what order are the three activities reported on the statement of cash flows?

Operating, investing, and financing.

What is the first step when adjusting net income to cash flows?

Expenses that do not affect cash are added back.

What is done with losses and gains on the disposal of assets when adjusting net income?

Losses on the disposal of assets are added and gains on the disposal of assets are deducted.

How are increases in noncash current operating assets treated when adjusting net income?

They are deducted.

How are increases in current operating liabilities treated when adjusting net income?

They are added.

How is depreciation expense treated when determining cash payments for operating expenses?

It is omitted because it does not require a cash outflow.

When determining cash payments for operating expenses, what adjustments are made?

Adjustments are made for increases or decreases in prepaid expenses and accrued expenses payable.

What adjustments are made to interest expense to determine cash payments for interest?

Adjustments for any increases or decreases in interest payable.

What adjustments are made to income tax expense to determine cash payments for income taxes?

Adjustments for any increases or decreases in income taxes payable.