Study Guide Exam 2 - Study Guide Exam 2 Chapter 5 Statement...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Study Guide Exam 2 Chapter 5 Statement of Cash Flows 1. The main purposes of the Statement of Cash Flows are to: a. Provide information about cash receipts and cash disbursements during the period b. Provide information about operating, investing and financing activities during the period 2. Information provided in a Statement of Cash Flows helps users assess: a. The company’s ability to generate future cash flows b. The company’s ability to pay dividends and short term liabilities c. The short term liquidity of a company d. The long term solvency of a company e. The differences between accrual basis income and cash basis income 3. Definition a. Shows the change in cash during the period, including the reasons for that change b. Lists all of the amounts of cash provided to the company (receipts) and used by the company (payments) during the period c. The difference between cash receipts and cash payments is the net increase or decrease in cash for that period d. All transactions can be classified into three main categories e. Format consists of these three categories, including the various transactions within each category 4. Three Categories a. Cash Flow From Operating Activities i. All cash transactions affecting net income. ii. “The cash flow from operating activities” can be considered to be equivalent to the “cash income” of the company, and would be equal to cash revenues minus cash expenses. iii. Examples 1. cash receipts from customers from the sale of goods or services 2. cash payment for expenses b. Cash Flow From Investing Activities i. Any cash transaction that affects a long-term asset account. ii. Examples 1. payment of cash for the purchase of property, plant and equipment 2. payment of cash for the purchase of long-term investments 3. receipt of cash from the sale of property, plan and equipment 4. receipt of cash from the sale of a long-term investment c. Cash Flow From Financing Activities i. Any cash transaction affecting long-term liabilities of stockholder equity accounts ii. Examples 1. receipt of cash from the sale of bond 2. receipt of cash from the sale of stock 3. payment of cash for the retirement bond 4. payment of cash for the repurchase of stock 5. payment of cash for dividends to stockholders 5. Review the Sample Format 6. Financial Measures Using the Statement of Cash Flows Information a. Current Cash Debt Ratio = Net cash provided by operating activities / Average current liabilities b. Cash Debt Coverage Ratio = Net cash provided by operating activities / Average total liabilities c. Free Cash Flow = Net cash provided by operating activities – Capital expenditures – dividends Balance Sheet: Introductory Comments 1. Balance Sheet: AKA the Statement of Financial Position, reports the financial position (assets, liabilities, and
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/15/2008 for the course BLAW 460 taught by Professor Reid during the Spring '08 term at Abilene Christian University.

Page1 / 3

Study Guide Exam 2 - Study Guide Exam 2 Chapter 5 Statement...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online