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ACCT 2102: Final Exam
Cash Flow Categories (3)
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(1) Operating: cash receipts and payments from selling goods and services (result in net income or net loss)
(2) Investing: purchasing and selling long-term assets
(3) Financing: issuing stock and borrowing
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Operating Cash Flow
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Directly related to earning income
Cash flow from producing and selling a product or providing a service.
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investing (cash flow)
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inflow or outflow of cash resulting fro the sale or purchase of long term assets, such as plant, property, and equipment and intangible assets
-look at changes in long term assets - did we use cash?
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cash flow from financing activities
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are cash inflows and outflows related to external sources of financing (owners and creditors) for the enterprise
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cash flow dividends
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financial use of cash flow
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do non cash investing/financial activities have to be reported on the statement of cash flows?
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Yes
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free cash flow
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-measures company's cash-generating ability
Cash Provided By Operations - Capital Expenditures - Cash Dividends
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Can you give examples of major line items on the Cash Flow Statement?
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Net Income; Depreciation & Amortization; Stock-Based
Compensation; Changes in Operating Assets & Liabilities; Cash Flow From Operations;
Capital Expenditures; Cash Flow From Investing; Sale/Purchase of Securities; Dividends
Issued; Cash Flow From Financing.
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what cash flow statement shows
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cash flows from operating activites (cash received/paid in selling/serving)
Cash flows from investing activities (cash received/paid for assets)
cash flows from financing activities (cash received/paid for liabilities such as bank loans)
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For a Self-employed borrower non-cash flow items, such as depreciation,
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should be added back to total income.
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Non cash flow items
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accrual and marketing processes
amortization, depreciation
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Cash flow statement includes?
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Income (Total Income)
Expenses (Total Expenditures)
Surplus (when income exceeds expenses)
Deficit (When expenses exceeds income)
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cash flow to equity owners includes
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1. dividends to preferred and common stock (outflow)
2. repurchase of stock (outflow)
3. new issuance of stock including options compensation (inflow)
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methods for calculating cash flows
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direct and indirect
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Cash flow with direct method
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Less common Each line item of the accrual-based income statement is converted into cash receipts or cash payments.
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cash flow for operating activities:
Direct Method
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Cash Received from customers less:
cash paid to suppliers (COGS - change in non cash assets (inventory) + change in liabilities (payables))
cash paid for wages
cash paid for advertising
cash paid for insurance, etc.
(ignore depreciation, amortization expenses, gains/losses)
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Indirect Method For Cash Flow Statement
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begins with accrual-basis net income and makes adjustments to that number to derive net cash flow from Operating Activities
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On a cash flow statement prepared using the indirect method, which isnot reported as an operating activity?
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proceeds from the sale of equipment
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FIFO inventory cash flow method
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based on the assumption that the costs of merchandise sold should be charged against revenue in the order in which the costs were incurred
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On a cash flow statement prepared using the indirect method, which isnot reported as an operating activity?
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proceeds from the sale of equipment
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cash flow for operating activities:
Direct Method
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Cash Received from customers less:
cash paid to suppliers (COGS - change in non cash assets (inventory) + change in liabilities (payables))
cash paid for wages
cash paid for advertising
cash paid for insurance, etc.
(ignore depreciation, amortization expenses, gains/losses)
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discounted cash flow (DCF) method
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A method of valuing a business that involves the application of capital budgeting procedures to an entire firm rather than to a single project.
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Cash flow Indirect Method
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NI + depreciation expense + amort. expense +/- Gains/Losses + all changes in current assets & current liablities = CASH FLOW FROM OPERATIONS
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