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ACFM 322 Chapter 21

TermDefinition
Operating Investing Financing What are the 3 categories of the cash flow statement?
Operating Activities Involves transactions from primary operations of business (these that are related to components of NI)
Investing Activities Involves purchasing and sale of long-term assets
Financing Activities Involves funding from external sources (investors & creditors)
1. Cash Flows from Operating Activities (Direct/Indirect) 2. Cash Flows from Investing Activities 3. Cash Flows from Financing Activities 4. Reconciliation to Cash on Balance Sheet 5. Noncash Investing & Financing Activities (disclosure note) Steps to making a statement of cash flows:
Financing & Increase Borrow money from bank
Operating & Decrease Pay employees' salaries
Operating & No Change Purchase inventory on account
Financing & Decrease Purchase treasury stock
Operating & Increase Collect payments from customers
Operating & Increase Receive sales-type lease payments
Financing & Increase Issue note payable
Operating & Decrease Pay interest
Operating & Decrease Pay income tax
Investing & Increase Sell land
Financing & Decrease Pay cash dividends
Financing & Decrease Retire bonds
Financing & Increase Sell bonds
Financing & Decrease Pay off mortgage note
Operating & Increase Receive cash dividends
Financing & Decrease Pay financing lease payments
Operating & Decrease Pay financing lease interest
Operating & No Change Make sales on account
Direct Method The cash effect of each operating activity is reported directly
Indirect Method The net cash increase/decrease from operating activities is derived indirectly by starting with reported net income and working backwards to convert that amount to a cash basis
Treat them as they are When using the indirect method and dealing with liabilities how should they be accounted for?
Do the inverse When using the indirect method and dealing with assets how should they be accounted for?
Operating activities inflows Received from customers Received from investments (dividends, interest, selling ST investments) Lessor's receipt of operating lease & sales-type lease payments
Operating activities outflows ST Investments Suppliers Employees Fund pension PA Advertising, rent, and insurance Interest Income Tax Lessee's PMTs for operating leases & interest on financing leases
Investing activities inflows Sale of PPE Sale of intangible assets Sale of LT investments (other companies' stock) Receipt of bond retirement funds
Investing activities outflows Purchase of PPE Purchase of intangible assets Purchase of LT investments (other companies' stocks/bonds) Lessor's proceeds from sale-leaseback transactions
Financing activities inflows Sale of stock Proceeds from exercise of stock options Sale of bonds Proceeds from loan
Financing activities outflows Payment of cash dividends Purchase of treasury stock Retirement of bonds Payment of loan principal Lessee's principal payments made for financing leases
Noncash investing & financing activities Purchase of asset by issuing a note payable Converting debt into common stock Exchanging noncash assets/liabilities (acquiring the ROU asset finance lease or granting the ROU of an asset sales-type lease)
Created by: MOWGaming04
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