Exam (elaborations)
ACG Exam -3 Statement of Cash Flows (1)
ACG Exam -3 Statement of Cash Flows (1)
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ACG Exam #3 Statement of Cash FlowsDo one time transactions belong in operating income? - ANS-No.
Under the cash basis of accounting - ANS-based on when cash is collected.
Under the accrual basis of accounting, - ANS-based on when it is earned.
Purposes of cash flow - ANS-1.To reconcile or explain how a company went form
beginning cash to ending cash.
2. To reconcile net income, prepared under the accrual basis of accounting, to the
underlying cash flow or operating cash flow.
Operating activities - ANS-Changes in operating current assets. When assets go up,
subtract.
Changes in operating current liabilities. When liabilities go up, add.
First add depreciation and amortization.
Bad debt expense is added if A/R is not net.
Current assets:
1.Accounts receivable
2.Inventory
3. Cash paid for interest and income taxes
Current liabilities
1.Accounts payable
2.Accrued expenses
Because short-term notes payable is not part of operations, it would not go in the
operations section. Goes in financing.
Investing activities - ANS-Changes in long-term assets or changes in non-operating
current assets.
Long-term assets
1. Property, plant, and equipment (Proceeds from sale of equipment)
2. Patents
3. Marketable securities
Financing activities - ANS-Changes in long-term debt and equity.
Long-term debt:
1.Short-term notes payable
2.Long-term debt
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