ACC 151: Chapter 12: The Statement of Cash Flows

stock, not

A ___1___ dividend has no effect on Cash and is ___2___ reported on the cash flow statement.

operating activities

Activities that create revenues, expenses, gains and losses; a section of the statement of cash flows. _____ affect the income statement.

investing activites

Activities that increase or decrease the long-term assets available to the business; a section of the statement of cash flows.

financing activities

Activities that obtain from investors and creditors the cash needed to launch and sustain the business; a section of the statement of cash flows.

cash flows

Cash receipts and cash payments (disbursements).

not

Depreciation, Depletion, and Amortization Expense -These expenses are _____ listed on the direct-method statement of cash flows because they do not affect cash.

long-term liabilities and stockholders' equity

Financing cash flows relate to _____.

direct method

Format of the operating activities section of the statement of cash flows; lists the major categories of operating cash receipts (collections from customers and receipts of interest and dividends) and cash disbursements (payments to suppliers and employees, and for interest and income taxes).

indirect method

Format of the operating activities section of the statement of cash flows; starts with net income and reconciles to net cash flow from operating activities.

cash equivalents

Highly liquid short-term investments that can be converted into cash immediately.

indirect method, direct method

In this chapter, we show you how to prepare and use the statement of cash flows. We begin with the statement format used by the vast majority of companies, the ___1___. We end with the alternate format of the statement of cash flows, the ___2___, which is used by a minority of companies but is considered by many to be more informative.

An increase in a noncash current asset decreases cash, A decrease in a noncash current asset increases cash, A decrease in a current liability decreases cash, An increase in a current liability increases cash

Most current assets and current liabilities result from operating activities. For example, accounts receivable result from sales, inventory relates to cost of goods sold, and so on. Except for Cash, changes in the current accounts are adjustments to net income on the cash flow statement. The reasoning is as follows: 1. ___1___. It takes cash to acquire assets... 2. ___2___... 3. ___3___. Payment of a current liability decreases both cash and the liability, so we subtract decreases in current liabilities. 4. ___4___...

cash

On a statement of _____ flows, _____ means more than just _____ in the bank... Throughout this chapter, the term _____ refers to _____ and _____ equivalents.

A successful business must generate most of its cash from operating activities

Operating activities are the most important of the three categories because they reflect the core of the organization. _____.

statement of cash flows

Reports cash receipts and cash payments classified according to the entity's major activities: operating, investing, and financing.

investing

Sales of long-term assets are _____ activities, and there's often a gain or loss on the sale.

free cash flow

The amount of cash available from operations after paying for planned investments in plant assets.

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

The equation for Free cash flow is _____.

Predicts future cash flows, Evaluates management decisions, Determines ability to pay dividends and interest, Shows the relationship of net income to cash flows

The statement of cash flows serves these purposes: 1. ___1___. Past cash receipts and payments are reasonably good predictors of future cash flows. 2. ___2___. Businesses that make wise decisions prosper, and those that make unwise decisions suffer losses. The statement of cash flows reports how managers got cash and how they used cash to run the business. 3. ___3___. Stockholders want dividends on their investments. Creditors demand interest and principal on their loans. The statement of cash flows reports on the ability to make these payments. 4. ___4___. Usually, high net income eventually leads to an increase in cash, and vice versa. But cash flow can suffer even when net income is high.

operating activities, investing, financing

There are two ways to format operating activities on the statement of cash flows: -Indirect method... -Direct method... The two methods use different computations, but they produce the same figure for Net cash provided by ___1___. The two methods do not affect ___2___ or ___3___ activities.

changes

To compute operating cash flows by the direct method, we use the income statement and the _____ in the balance-sheet accounts.

Suppliers

_____ are those entities that provide inventory and essential services.