Cash Flows

Question 1

Two Methods of Cash Flows?

Answer 1

1. Direct Method

2. Indirect Method

Question 2

Major Sections of Cash Flow?

Answer 2

Operating
Investing
Financing
Effect Foreign Currentlcy
Recon with Cash Change

Question 3

Which dislosure are not similar between Direct Method & Indirect Method?

Answer 3

1. Recon Cash Flows from Operating Activities with Net Income in support schedule 
     ( Direct Method it is a disclosure)
     (Indirect Method it is in Body of Statement)
2. Income in Supporting Schedule:
     a. Payment of Interest
     (Direct Method In body of stmt)
    ( Indirect Method in dislosure)
    b. Payment for Income Tax
      (Direct Method in body of stmt)
      ( Indirect Method in disclosure)

Question 4

Indirect Method CF from Operating Activities Begin with and how is it adjusted?

Answer 4

Net Income (Accrual basis) and adjusts for items that entered into computing Net Income but did not affect cash by same amount.

Question 5

Indirect Method Add Back to Net Income?

Answer 5

1. Dep Exp
   2.Amorti Exp
2. Depletion Ex
3. Losses (from sales of assets)
   5 Loss under equity method accounting Investments
4. Amortizat. of Prem on bond Inv.
5. Amortizat. of Discount on Bonds Pybl
   8.Decrease Current Assets (AR/Inv/Prpd)
6. Increase Current Liab (AP/Def Taxes)
7. Increase Unearned Rev.

Question 6

Indirect Method Subtract out of Net Income

Answer 6

1. Gains (Sale assets)
2. Amortiz of Discount on Bond Inv.
3. Amortiz of Premium on Bond Pybl.
4. Undistributed Income Under Equity Invest.
5. Increases in Current Assets (AR/Invent/Prpd)
6. Decrease in Current Liab ( AP/Def Taxes)
7. Decrease in Unearned Rev

Question 7

Deprectiation/Amortization/Depletion Expenses Handled Indirect method?

Answer 7

Non Cash items added back to Net Income (by amount recognized as an expense)

Question 8

Losses/Gains Handled Indirect Method?

Answer 8

Non Cash Deductions:

• Losses are added back to Net Income
• Gains are subtracted from Net Income

Question 9

Equity Method Adjust Handled Indirect Method?

Answer 9

Loss- add back

Income (Revenue) Subtract amount recognized as rev that was not received as cash dividends

Question 10

Amortization of premium on bond investment Indirect Method?

Answer 10

• The amount of amortization should be added back to Net Income.
• If the bonds had been acquired at less than maturity value, the resulting amortization of the discount would have to be subtracted from Net Income.

Question 11

Amortization of discount on bonds payable Indirect method?

Answer 11

1 . The amount of amortization should be added back to Net Income.
2 . If the bonds had been issued (sold) at more than maturity value, the resulting amortization of the premium would have to be subtracted from Net Income

Question 12

Direct/ Indirect Comparisons

Answer 12

A.The direct method presents cash flows in terms of the specific sources from which cash was received (inflows) and to which cash was paid (outflows).
B.The indirect method develops cash flows by adjusting net income, and does not (necessarily) identify the specific sources of cash inflows or outflows.
C.Under either method, the Cash Flow from Operating Activities will be the same amount.
D.Under either method, the other major sections of the Statement of Cash Flows—Investing, Financing, Foreign Currency effects, and the Reconciliation of the Change in Cash—will be the same.
E.The direct method is preferred (by the FASB).
F.Both methods require disclosure of the “Noncash Investing and Financing.”
G.The direct method requires an additional schedule to reconcile net income to Cash Flow from Operating Activities.
H.The indirect method requires an additional disclosure of the amount (of cash) paid for interest and dividends.

Question 13

Direct Method CFS Layout (operating)

Answer 13

Operating: Direct Method:
Cash Collected From:
    -Customers
    -Dividends
    -ect
Cash Payments To:
    - Suppliers
    -  Employees
   -  Interest
   - Increase in Current Assets
Net Cash Provided by Operating Activities

Question 14

Direct & Indirect Method CFS Layout (investing)

Answer 14

Cash Flows from Investing Activities:
  Cash Rcvd from:
   - Sale of Equip
  - Collection of Loan
    -ect
 Cash Pd to:
  -Purchase Equip
 - Loan to (other)
 - Investment in (other)
  - Etc.
Net Cash Provided by Investing Activities

Question 15

Direct & Indirect Method CFS Layout (Financing)

Answer 15

Cash Flows from Financing Activities:
  Cash Rcvd from:
   - Sale of Own Stock
  - Proceeds from Borrowing
    -ect
 Cash Pd to:
  -Repaying Debt
 - Paying Dividends
  - Etc.
Net Cash Provided by Financing Activities

Question 16

What is the equation to go from Accural to Cash for Operating Activities (Indirect Method)

Answer 16

Cash= L+E-OA Balance sheet accts

Cash =OA -L-E Income Stmt accts