Cash Flow Statement

Question 0

Cash Flow Statement: Cash vs. Cash Equivalent

Answer 0

Cash: Currency, Checks in hand, Deposits in bank

Cash Equivalents: Treasury Bills, CDs, Commercial Paper

Question 1

What is a Cash Flow Statement?

Answer 1

A record of the amount of cash and cash equivalents that flow in and out of a company for a specific time.

Question 2

Why is the Cash Flow Statement important?

Answer 2

Cash is the “Lifeblood of Business” and it helps you know where money is coming from and where its being spent. It also alerts you when a cash flow problem is coming.

Question 3

Cash Flow Statement: What does it tell you?

Answer 3

It tells you whether a company has generated cash. It shows you change over time usually a month by month basis rather then showing a absolute dollar amount at a specific time.
Note: It uses and reorders the information from a company’s BS & IS.

Question 4

What makes up a Cash Flow Statement? It is generall broken down into 3 sections.

Answer 4

1. Operating Activities
2. Interest Activities
3. Financing Activities

Question 5

Cash Flow Statement: Operating Activities

Answer 5

Reflects how much cash is generated from a companys products and services.

Question 6

Cash Flow Statement: Operating Activities are broken into 2 sections. What are they?

Answer 6

1. Cash Reciepts: (A)Sales of Goods or Services. (B) Interest Revenue. (C) Dividend Revenue
2. Cash Payments: (A) Payroll (B) Taxes (C) Interest Expense (D) Other; {like utilities, rent, etc.}

Question 7

Cash Flow Statement: Why is Investing Activities important?

Answer 7

Reports the purchase and sales of long-term assets

Question 8

Cash Flow Statement: What make up the investing activities?

Answer 8

1. Cash Reciepts: Sales of Property and Equip., Sales of Business Segmant, Sale of Investments in equity securities of other entities or debt securities (other than cash equivalents), Collection of Principal on.
2. Cash Payments: Dividends to Stockholders, Repaying principal amounts borrowed, Repurchasing the company’s own stock (Treasury stock)

Question 9

Cash Flow Statement: How to calculate?

Answer 9

There are two methods calculating and reporting the net cash flow from operating activities.

Question 10

Cash Flow Statement: What are the two methods when calculating and reporting the net cash flow from operating activities?

Answer 10

1. Direct Method: Cash accounting recognizes transactions when cash is exchanged.
   Note: This method is used by accounting only if there is a exchange in cash.
2. Indirect Method: This method is used more often and is preferred because it gives a more accurate picture of the company’s current condition recognized as the transaction happens.

Note: Both give the same results.