Manual Project Ch 7

Card Set Information

Manual Project Ch 7
2014-10-26 15:33:40
Accounting 406

Statement of Cash Flows
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  1. Statement of Cash Flows
    Increases and decreases in cash and cash equivalents for an accounting period
  2. Classification of Cash Flows 3
    • Operating activities
    • Investing Activities
    • Financing Activities
  3. Operating actives
    inflows and outlows
    • Cash effects for net income
    • Inflows- cash received as payments
    • Outflows-payments for wages, goods, services, taxes
  4. Investing activities
    buying and selling fixed assets, market securities other than ash equivalents, making and collecting loans
  5. Financing activities
    obtaining or returning cash with owners and creditors
  6. Format for statement of cash flows
    • Operating activities
    • Investing activities
    • Financing activities
    • Net Increase (decrease) in cash
    • cash beg of year
    • cash end of year
    • schedule of noncash activities
  7. Noncash Investing and financing transactions
    • disclosed in separate part of cash flow statement or in footnotes
    • Company purchase long-term assets or settle liabilities in other ways than cash.
    • With a long tern note
  8. Direct vs Indirect method
    • different ways of presenting operating activities. financing and investing presented the same
    • Indirect somewhat easier to prepare
  9. Indirect method
    Starts with net income and makes adjustments for the differences between accrual and cash basis
  10. Direct method
    Requires adjusting each account in the income statement for differences between accrual and cash basis
  11. Preparation of Statement of Cash Flows
    2 Items needed and why
    • 1. post closing trial balance (beginning)
    • 2.Increases and decreases of all balance sheet accounts other than operating activities
    • Converts from accrual to cash basis
  12. Preparation of Statement of Cash Flows
    • 1. Net change in cash and cash equivalents
    • 2. Net change in all other accounts
    • 3. Cash flow from operating activities
    • 4. Cash flow from investing activities
    • 5. Cash flow from financing activities
    • 6. Prepare statement of cash flows
  13. Preparation of Statement of Cash Flows
    cash flows from operating activities
    net income adjusted for these items 3
    • 1.Income statement accounts that do not affect cash flows
    • 2.Income statement revenue and expenses not apart of operating activities
    • 3 Adjustments for changes in all noncash current assets and liabilities related to operating activies
  14. Cash Flow Statement
    Direct Method
    3 additional adjustments
    • 1. Cash receipt from sales - increase in Acct Rec. - Bad debt exp
    • 2. Cash payments for purchases = COGS - decrease in inventory - increase in Acct Pay.
    • 3. Cash payments for payroll = wages and sal. exp. - increase in wages and sal. payable