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17 Cards in this Set
- Front
- Back
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operating activities
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cash effect of items that impact income statement
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operating activities inflows
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sale of goods and services
interest and dividends recevied |
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operating activities outflows
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purchase inventory
employees salary taxes, interest, other expenses |
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investing activities
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purchase and sale of PPE + long term assets + investments
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investing activities inflows
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sale of PPE
sale of investments cash received for principal on loan |
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investing activities outflows
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purchase of PPE
make loans purchase investments |
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financing activities
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cash paid/received from creditors/investors
long term liability + stockholders equity |
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financing activities inflows
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sale of stock
bank loan |
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financing activities outflows
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dividends paid
principle payment on loan |
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direct method
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preferred by FASB
must show indirect as well list out each specific cash flow by each category |
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indirect method
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most companies prefer it
reveals less info to competitors starts with net income (convert into cash accounting) |
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direct method calculation
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1) each item on income statement match with balance sheet account
2) draw t accounts and analyze to determine cash effect on income statement 3) examples of non cash revenues and expenses are depreciation expense losses and gains |
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inventory account
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inventory account matches with COGS but gives us inventory purchased only. After you take that and match it into accounts payable to see how much cash was paid to buy inventory. TWO STEP PROCESS
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indirect method calculation
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net income
+depreciation expense +losses -gains +decrease in current assets -increase in current assets +increase in current liabilities -decrease in current liabilities NET CASH FLOW FROM OA |
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cash flow analysis
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1) should always have positive cash flow from operating activities
2) negative cash flow from investing activities 3) cash flow from financing activities can be positive or negative |
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current cash debt coverage ratio equation
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net cash flow from operating activities / avg current liabilities
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average current liabilities equation
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current liabilities at Jan 1 + current liabilities at Dec 31 / 2
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