Accounting Chapter 13

cash flow per share is normally computed as _______________________________________

cash flow per share is normally computed as *cash flow from operations divided by the number of common shares outstanding*

List two reasons cash flow per share reporting may be misleading

cash flow per share reporting may be misleading because of the following: - Users may misinterpret cash flow per share as the per-share amount available for dividends. This would not be the case if the cash generated by operations is required for repaying loans or for reinvesting in the business. - Users may misinterpret cash flow per share as equivalent to (or better than) earnings per share.

A primary advantage of the indirect method is that it ____________________________________. In doing so, it shows how net income is related to ______________________________________.

A primary advantage of the indirect method is that *it reconciles the differences between net income and net cash flow from operations*. In doing so, it *shows how net income is related to the ending cash balance that is reported on the balance sheet.*

statement of cash flows

A summary of the cash receipts and cash payments for a specific period of time, such as a month or a year.

Is the direct or indirect method of cash flows less costly to prepare?

Because the data are readily available, the indirect method is less costly to prepare than the direct method

Cash flows from investing activities show the cash inflows and outflows related to changes in a company's _______________ assets

Cash flows from investing activities show the cash inflows and outflows related to changes in a company's *long-term* assets

Fill in the blank and match the three examples to the correct cash flow: Cash flows from operating activities are the cash flows from transactions that affect __________________________ of the company. Cash flows from investing activities are the cash flows from transactions that affect __________________________ of the company. Cash flows from financing activities are the cash flows from transactions that affect __________________________ of the company. Example: 1. Purchase and sale of fixed assets, such as equipment and buildings. 2. Issuing or retiring equity and debt securities. 3. Purchase and sale of merchandise by a retailer.

Cash flows from operating activities are the cash flows from transactions that affect the *net income* of the company. Example: *Purchase and sale of merchandise by a retailer.* Cash flows from investing activities are the cash flows from transactions that affect *investments in the noncurrent assets* of the company. Example: *Purchase and sale of fixed assets, such as equipment and buildings.* Cash flows from financing activities are the cash flows from transactions that affect *the debt and equity* of the company. Example: *Issuing or retiring equity and debt securities.*

Cash inflows from *financing activities* normally arise from _________________________________________________________. Cash outflows from financing activities include _________________________________________________________.

Cash inflows from financing activities normally arise from *issuing long-term debt or equity securities.* Cash outflows from financing activities include *paying cash dividends, repaying long-term debt, and acquiring treasury stock.*

Cash inflows from *investing activities* normally arise from _______________________________________________. Cash outflows normally include ______________________________________________________________.

Cash inflows from investing activities normally arise from *selling fixed assets, investments, and intangible assets. * Cash outflows normally include *payments to purchase fixed assets, investments, and intangible assets.*

T/F: the direct method is normally cheaper to prepare and, as a result, is used frequently in practice

False; the direct method is normally *more* costly to prepare and, as a result, is used *infrequently* in practice

The primary advantage of the direct method is that it ______________________________________________________. Its primary disadvantage is that ______________________________________________________

The primary advantage of the direct method is that it *directly reports cash receipts and cash payments on the statement of cash flows.* Its primary disadvantage is that *these data may not be readily available in the accounting records*

The primary operating cash inflow is cash received from __________________.

The primary operating cash inflow is cash received from *customers*

The primary *operating cash* outflows are cash payments for __________________, __________________, __________________, and __________________

The primary operating cash outflows are *cash payments for merchandise, operating expenses, interest*, and *income tax payments*

The statement of cash flows is used by managers to __________________________________________________ and by external users such as investors and creditors to __________________________________________________

The statement of cash flows is used by managers to *evaluate past operations and in plan future investing and financing activities* and by external users such as investors and creditors to *assess a company's profit potential and ability to pay its debt and pay dividends.*

The statement of cash flows provides useful information about a company's ability to do the following:

The statement of cash flows provides useful information about a company's ability to do the following: - Generate cash from operations - Maintain and expand its operating capacity - Meet its financial obligations - Pay dividends

The statement of cash flows reports cash flows from _______________, _______________, and _______________ activities.

The statement of cash flows reports cash flows from *operating, investing, and financing* activities.