Chapter 12: Statement of Cash Flows

Under the direct method cash paid to suppliers equals?

-COGS -increase (+ decrease) inventory - decrease (+ increase) accounts payable -operating expenses - increase (+decrease) prepaids - decrease (+ increase) accrued liabilities

What are the purposes of the Statement of Cash Flows?

1. Predicts future cash flows 2. Evaluates management decisions 3. Determines ability to pay dividends and interest 4. Shows relations of net income to tax flows

What are the two methods for formatting the cash flow statement?

Direct and indirect

What is the formula for net plant assets?

Ending balance = Beginning balance + acquisitions -depreciation - book value of assets sold

What is the formula for total non-cash financing and investing activities?

acquisition of building by issuing common stock + acquisition of land by issuing notes payable + payment of long-term debt by issuing stock + bonds converted into common stock + stock dividends distributed

Is borrowing added or subtracted to find the net cash provided my financing activities?

added

Under the indirect method are decreases in current assets added to or subtracted from net income?

added

Under the indirect method are depreciation, depletion, and amortization added to or subtracted from net income?

added

Under the indirect method are increases in current liabilities added to or subtracted from net income?

added

Are prepaids an asset, liability, or part of owners equity?

asset

What are the categories of operating inflows under the direct method?

collections from customers interest and dividends received

Under both the direct and indirect methods, liabilities have a direct or indirect relationship?

direct

Which method for formatting the cash flow statement reports all cash receipts and cash payments from operating activities?

direct

Which method for formatting the cash flow statement is preferred by the Financial Accounting Standards Board? Why?

direct because it provides clearer information about the sources and uses of cash

What is the formula for net long term debt?

ending balance = beginning balance + issuance of new debt - payment of debt

What is the formula for net treasury stock?

ending balance = beginning balance + purchases - sale

Cash obtained or given to investors and creditors is reported in the operating, investing, or financing part of cash flows?

financing

Long-term liabilities are related to which part of the cash flow statement?

financing

Owner's equity is related to which part of the cash flow statement?

financing

Where is cash paid for dividends reported on the cash flow statement?

financing activities

Where is cash paid for the purchase of the company's own stock reported on the cash flow statement?

financing activities

Where is cash paid for the repayment of principal on notes payable reported on the cash flow statement?

financing activities

Where is cash paid on the maturity date of bonds payable reported on the cash flow statement?

financing activities

Where is cash received for issuing bonds payable reported on the cash flow statement?

financing activities

Where is cash received for sale of the company's stock reported on the cash flow statement?

financing activities

Where is cash received from notes payable reported on the cash flow statement?

financing activities

Under both the direct and indirect methods, assets have a direct or indirect relationship?

indirect

Which method for formatting the cash flow statement reconciles from net income to cash provided by operating activities?

indirect

Which method for formatting the cash flow statement is used by most companies? Why?

indirect because it requires less calculations

Under the direct method cash received from interest equals?

interest revenue + decrease (- increase) in interest receivable

Long-term assets relate to the operating, investing, or financial category?

investing

Long-term assets are related to which part of the cash flow statement?

investing activities

Where is cash paid for the purchase of long-term assets reported on the cash flow statement?

investing activities

When computing cash outflows under the direct method your starting number should always be negative or positive?

negative

Current liabilities are related to which part of the cash flow statement?

operating

Successful businesses generate most of their revenue from the operating, investing, or financing category of the cash flow statement?

operating

What parts of the cash flow statement are affected the method chosen for formatting?

operating

Where is cash for income tax reported on the cash flow statement?

operating

Where is cash paid for interest reported on the cash flow statement?

operating

Where is cash paid to employees reported on the cash flow statement?

operating

Where is cash paid to suppliers reported on the cash flow statement?

operating

Current assets are related to which part of the cash flow statement?

operating activities

Where is cash paid for the repayment of interest on notes payable reported on the cash flow statement?

operating activities

What are the categories of the cash flow statement?

operating, investing, financing

When computing cash inflows under the direct method your starting number should always be negative or positive?

positive

Under the direct method cash received from customers equals?

sales revenue + decrease (-increase) in accounts receivable

Are loans to others added or subtracted to find the net cash provided by investing activities?

subtracted

Under the indirect method are decreases in current liabilities added to or subtracted from net income?

subtracted

Under the indirect method are gains on sales of long-term assets added to or subtracted from net income?

subtracted

Under the indirect method are increases in current assets added to or subtracted from net income?

subtracted

What are the categories of operating outflows under the direct method?

to suppliers, to employees, for interest and income taxes

Under the direct method cash paid for income taxes equals?

-income tax expense -decrease (+increase) income taxes payable

Under the direct method cash paid for interest equals?

-interest expense - decrease (+increase) interest payable

Under the direct method cash paid to employees equals?

-salary expense -decrease (+increase) salaries payable

Does the statement of cash flows reflect an instant in time or a period of time?

A period of time

What is the formula for free cash flow?

Free cash flow = net cash provided by operating activities - cash payments earmarked for investments in plant assets

Where are Non-cash Investing and Financing Activities disclosed?

In a note to the statement of cash flows

Do dividends declared go into the calculations for the statement of cash flows?

No. Only dividends PAID are part of the calculation. They are a cash outflow for financing activities

Under the indirect method are losses on sales of long-term assets added to or subtracted from net income?

added

What is the formula for net retained earnings?

ending balance = beginning balance + net income - dividends declared

What is the formula for notes receivable?

ending balance = beginning balance + new loans - collections on loans

What is the formula for net "other investments"?

ending balance = beginning balance + purchases - book value of investments sold

Where is cash paid for the purchase of stocks, bonds, etc. reported on the cash flow statement?

investing activities

Where is cash received for the sale of long-term assets reported on the cash flow statement?

investing activities

Where is cash received for the sale or maturity of investments reported on the cash flow statement?

investing activities

Where is dividends received reported on the cash flow statement?

operating

Where is interest received reported on the cash flow statement?

operating

Would entries that would be reported as Net Income be part of the operating, investing, or financial category?

operating