ACCT10001 Chapter Notes - Chapter 7: Corporate Finance, Cash Cash, Operating Cash Flow

32 views5 pages

orangemole587

22 May 2018

School

University of Melbourne

Department

Accounting

Course

ACCT10001

Professor

Noel Boys

For unlimited access to Textbook Notes, a Class+ subscription is required.

Purpose = report the cash flows of a business

Working capital is needed to fund inventory and accounts receivable while awaiting receipts

Flows of cash are important for working capital management

Flow of cash:

Purchase of inventory

> payment for inventory and wages

> sale of inventory or service

> receipts

from sales

> purchase of inventory

More times an entity can cycle through process

> more profit

Cash is important as there is often an outflow of funds for inventory and wages prior to inflow from

sales

Statement of cash flows ascertains cash generation from this cycle and whether or not entity is

collecting receipts in a timely manner

Statement of cash flows shows actual cash receipts and payments

Difference between cash and accrual accounting:

Statement of cash flows is concerned with cash receipts and payments, not timing of underlying

transaction

Prepared on cash basis (whereas statement of profit or loss and balance sheet are prepared on

accrual basis)

Importance of cash to ongoing survival of business cannot be overstated

Entity needs to have enough cash to ensure it can meet financial obligations, but not too much since

there are costs associated with keeping a supply of read cash

Ability of entity to manage flow of cash in and out of business is critical for success

Relationship of the statement of cash flows to other financial statements:

Statement of cash flows was introduced because statement of profit or loss and balance sheet did

not provide a complete picture of entity's economic activities

Statement of cash flows gives information additional to that provided by other statements

Generate cash flows

Meet financial commitments as they fall due, incl. servicing of borrowings and payment of

dividends

Fund changes in scope and/or nature of activities

Obtain external finance

Information provided should assist decision makers in assessing entity's ability to:

Operating activities

Investing activities

Financing activities

Cash inflows and outflows are grouped into activities:

Purpose and usefulness of statement of cash flows

Tuesday, 4 April 2017 12:59 PM

ARA Page 1

Unlock document

This preview shows pages 1-2 of the document.
Unlock all 5 pages and 3 million more documents.

Already have an account? Log in

Cash refers to cash and cash equivalents

Cash = cash on hand and demand deposits

Cash equivalents = highly liquid investments and short

term borrowings that are subject to an

insignificant risk of change in value

Operating activities:

Operating activities = activities that related to provision of goods and services, and other activities

that are neither investing nor financing activities

Cash sale of goods or services

Cash received from customers

Receipt of interest or dividends

Cash inflows:

Payments to suppliers

Payment of salaries and wages

Payment of tax and interest

Cash outflows:

Net cash flow from operating activities is an important measure to gauge entity's ability to generate

cash, to meet obligations, to continue as a going concern and to expand

Investing activities:

Investing activities = activities that relate to acquisition and/or disposal of non

current assets (PPE

and other productive assets) and investments (eg. securities) not falling within the definition of cash

Cash paid for non

current assets and received from sale of non

current assets

Sale of PPE

Sale of shares

Collection of loans from other entities

Cash inflows:

Purchase of PPE

Purchase of shares

Lending of money to other entities

Cash outflows:

Allow users to analyse entity's future direction by studying major asset acquisitions and disposals

Expect net cash flow from investing activities to be negative if entity has desire to grow

Financing activities:

Financing activities = activities that change size and/or composition of the financial structure of

entity (incl. equity) and borrowings not falling within definition of cash

Cash received from issue of own shares

Cash from borrowings

Cash inflows:

Dividends paid to shareholders

Repurchase of shares from shareholders

Repayment of borrowings

Cash outflows:

Reconciliation of cash from operating activities with operating profit:

Reconciliation starts with profit or loss after tax and ends with cash from operating activities

Reconciliation must be disclosed in financial statements as a note

Summary of reconciliation of profit to net cash flows:

Operating profit after tax

+ depreciation/amortisation/loss on sale of asset

Adjustments in non

cash items from statement of profit or loss

Format of the statement of cash flows

Tuesday, 4 April 2017 1:33 PM

ARA Page 2

Unlock document

This preview shows pages 1-2 of the document.
Unlock all 5 pages and 3 million more documents.

Already have an account? Log in

Document Summary

Purpose a(cid:374)d useful(cid:374)ess of state(cid:373)e(cid:374)t of cash flows. Pu(cid:396)pose = (cid:396)epo(cid:396)t the (cid:272)ash flo(cid:449)s of a (cid:271)usi(cid:374)ess. Flo(cid:449)s of (cid:272)ash a(cid:396)e i(cid:373)po(cid:396)ta(cid:374)t fo(cid:396) (cid:449)o(cid:396)ki(cid:374)g (cid:272)apital (cid:373)a(cid:374)age(cid:373)e(cid:374)t. Wo(cid:396)ki(cid:374)g (cid:272)apital is (cid:374)eeded to fu(cid:374)d i(cid:374)(cid:448)e(cid:374)to(cid:396)(cid:455) a(cid:374)d a(cid:272)(cid:272)ou(cid:374)ts (cid:396)e(cid:272)ei(cid:448)a(cid:271)le (cid:449)hile a(cid:449)aiti(cid:374)g (cid:396)e(cid:272)eipts. Pu(cid:396)(cid:272)hase of i(cid:374)(cid:448)e(cid:374)to(cid:396)(cid:455) -> pa(cid:455)(cid:373)e(cid:374)t fo(cid:396) i(cid:374)(cid:448)e(cid:374)to(cid:396)(cid:455) a(cid:374)d (cid:449)ages -> sale of i(cid:374)(cid:448)e(cid:374)to(cid:396)(cid:455) o(cid:396) se(cid:396)(cid:448)i(cid:272)e -> (cid:396)e(cid:272)eipts f(cid:396)o(cid:373) sales -> pu(cid:396)(cid:272)hase of i(cid:374)(cid:448)e(cid:374)to(cid:396)(cid:455) Mo(cid:396)e ti(cid:373)es a(cid:374) e(cid:374)tit(cid:455) (cid:272)a(cid:374) (cid:272)(cid:455)(cid:272)le th(cid:396)ough p(cid:396)o(cid:272)ess -> (cid:373)o(cid:396)e p(cid:396)ofit. Cash is i(cid:373)po(cid:396)ta(cid:374)t as the(cid:396)e is ofte(cid:374) a(cid:374) outflo(cid:449) of fu(cid:374)ds fo(cid:396) i(cid:374)(cid:448)e(cid:374)to(cid:396)(cid:455) a(cid:374)d (cid:449)ages p(cid:396)io(cid:396) to i(cid:374)flo(cid:449) f(cid:396)o(cid:373) sales. State(cid:373)e(cid:374)t of (cid:272)ash flo(cid:449)s as(cid:272)e(cid:396)tai(cid:374)s (cid:272)ash ge(cid:374)e(cid:396)atio(cid:374) f(cid:396)o(cid:373) this (cid:272)(cid:455)(cid:272)le a(cid:374)d (cid:449)hethe(cid:396) o(cid:396) (cid:374)ot e(cid:374)tit(cid:455) is (cid:272)olle(cid:272)ti(cid:374)g (cid:396)e(cid:272)eipts i(cid:374) a ti(cid:373)el(cid:455) (cid:373)a(cid:374)(cid:374)e(cid:396) State(cid:373)e(cid:374)t of (cid:272)ash flo(cid:449)s sho(cid:449)s a(cid:272)tual (cid:272)ash (cid:396)e(cid:272)eipts a(cid:374)d pa(cid:455)(cid:373)e(cid:374)ts. State(cid:373)e(cid:374)t of (cid:272)ash flo(cid:449)s is (cid:272)o(cid:374)(cid:272)e(cid:396)(cid:374)ed (cid:449)ith (cid:272)ash (cid:396)e(cid:272)eipts a(cid:374)d pa(cid:455)(cid:373)e(cid:374)ts, (cid:374)ot ti(cid:373)i(cid:374)g of u(cid:374)de(cid:396)l(cid:455)i(cid:374)g t(cid:396)a(cid:374)sa(cid:272)tio(cid:374) P(cid:396)epa(cid:396)ed o(cid:374) (cid:272)ash (cid:271)asis (cid:894)(cid:449)he(cid:396)eas state(cid:373)e(cid:374)t of p(cid:396)ofit o(cid:396) loss a(cid:374)d (cid:271)ala(cid:374)(cid:272)e sheet a(cid:396)e p(cid:396)epa(cid:396)ed o(cid:374) a(cid:272)(cid:272)(cid:396)ual (cid:271)asis(cid:895)

Related Questions

Choose the correction answer

15. The statement of cash flowsprovides information to help investors and creditors assess thecash and noncash investing and financing transactions during theperiod.

T F

16. The net increase(decrease) in cash reported on the statement of cash flows shouldreconcile the beginning and ending cash balances reported in thecomparative balance sheets.

T F

17. Anobjective of the statement of cash flows is to

a. disclose changes during the period in all assetand all equity accounts.

b. disclose the change in working capital during theperiod.

c. provide information about the operating,investing, and financing activities of an entity during aperiod.

d. None of these answers are correct.

18. Theprimary purpose of the statement of cash flows is to provideinformation

a. about the operating, investing, and financingactivities of an entity during a period.

b. that is useful in assessing future cash flowprospects.

c. about the cash receipts and cash payments of anentity during a period.

d. about the entity's ability to meet itsobligations and to pay dividends.

19. Cash equivalents are

a. treasury bills, commercial paper, and moneymarket funds purchased with excess cash.

b. investments with original maturities of threemonths or less.

c. readily convertible into known amounts ofcash.

d. All of these answers are correct.

20. Xanthe Corporation had the following transactions occur in thecurrent year:

1. Cash sale of merchandise inventory.

2. Sale of delivery truck at book value.

3. Sale of Xanthe common stock for cash.

4. Issuance of a note payable to a bank forcash.

5. Sale of a security held as anavailable-for-sale investment.

6. Collection of loan receivable.

How many of the above items willappear as a cash inflow from investing activities on a statement ofcash flows for the current year?

a. Five items

b. Four items

c. Three items

d. Two items

erinchimpanzee626

Multiple Choice:

21. All the following are true regarding Quotesexcept:

a. Quotes post entries to general ledger accounts

b. Quotes can be transferred to create an invoice

c. Quotes can be linked to customer jobs

d. Quotes can be linked to items

22. If a customer was overcharged for theservices, the customer's invoice can be reduced by posting a:

a. Sales invoice

b. Customer receipt

c. Debit memo

d. Credit memo

23. On the statement of cash flows, the cashflows from operating activities section would include:

a. Receipts from the issuance of capital stock

b. Receipts from the sale of investments

c. Payments for the acquisition of investments

d. Net income

24.The Income Statement will include thefollowing accounts:

a. Revenues less Expenses (ordered largest to smallest amount)with Other Expenses listed last
b. Revenues less Expenses (ordered smallest to largest amounts.With Miscellaneous Expenses listed last

c. Revenues less Expenses (ordered in alphabetical order) withOther Expenses listed last

d. Revenues less Expenses (order is not important)

25. The Statement of Cash Flows answers all ofthe following except:

a. Where the receipts come from

b. Where the cash payments were used for

c. What the overall change in cash was

d. If there will be enough cash to pay the currentliabilities

26. On the Navigation Bar, make the followingselections to enter a sales invoice:

a. Customers & Sales Navigation Center, click on theCustomers icon and select View and Edit Customers

b. Customers & Sales Navigation Center, click on the SalesInvoices icon and select Set up Invoice Defaults

c. Tasks; Purchases/Receive Inventory

d. Customers & Sales Navigation Center, click on the SalesInvoices icon and select New Sales Invoice

27. The following would be included in theheading of an income statement:

a. Title of the statement

b. Name of the business

c. Period of time covered by the statement

d. All of the above

. 28. A departmentalized accounting systemprovides information that can be used to:

a. Custom design departmental statements

b. Evaluate profitability and cost effectiveness

c. Evaluate current assets

d. Modify PCA's standard forms

29. In Peachtree, information about a sale isrecorded in the:

a. Purchase window

b. Inventory window

c. Purchases/Receive Inventory window

d. Sales/Invoicing window

30. The sample company, Bellwether GardenSupply, uses which method of posting?

a. Batch posting

b. Real-time posting

c. Cash basis posting

d. Accrual basis posting

jadekoala82

1) The statement of cash flows is used for _____.

A. showing the relationship of net income to changes in currentassets

B. determining a company%u2019s acceptable level of debtfinancing

C. revealing commitments that may restrict future courses ofaction

D. evaluating the creditworthiness of the organization

2) Nonoperating items on the income statement _____.

A. are revenues and expenses arising from adjusting entries

B. include interest income and expense

C. appear only on corporate income statements

D. appear on the income statement immediately after grossprofit

3) The difference between a single-step and multiple-step incomestatement is that a single-step income statement _____.

A. groups all revenues together and all expenses together, whereasa multiple-step income statement separates certain revenues andexpenses from each other and presents subtotals

B. calculates net income using one method, whereas a multiple-stepincome statement calculates net income using two or moremethods

C. calculates gross profit and operating income, whereas amultiple-step income statement does not

D. shows only 1 year's net income, whereas a multiple-step incomestatement shows multiple years' net income

4) Which one of the following statements is true?

A. The statement of cash flows reports the cash receipts but notcash payments of an entity over a period of time.

B. Both the statement of cash flows and the income statementdetermine the net income for a company.

C. Transactions affecting the sale and the purchase or productionof goods and services are reported in the financing activitiessection of the statement of cash flows.

D. Investing activities in the statement of cash flows includeacquiring and selling long-term assets.

5) The _____ accounting convention uses the acquisition cost minusdepreciation in valuing an asset on the balance sheet.

A. continuity

B. conservatism

C. cost-benefit

D. materiality

6) A new corporation issuing a common, no-par value stock for cashwould include a journal entry a debit to _____.

A. paid-in capital and a credit to retained earnings.

B. cash and a credit to common stock.

C. retained earnings and a credit to cash.

D. cash and a credit to retained income.

7) Which type of organization would most likely havework-in-process inventory?

A. A retail store

B. A manufacturing company

C. A service organization

D. A real-estate investment trust

8) _____ is a measure of income or profit divided by the investmentrequired to obtain that income or profit.

A. Return on sales

B. Capital turnover

C. Return on investment

D. Residual income

9) The following information is available for the PeterCompany:

Sales: $150,000

Invested capital: $156,250

ROI: 10%

The return on sales is _____.

A. 10.00%

B. 10.42%

C. 62.50%

D. 9.60%

10) The following information is available for the PeterCompany:

Sales: $500,000

Invested capital: $312,500

ROI: 10%

The return on sales is _____.

A. 10.00%

B. 6.250%

C. 1.000%

D. 62.50%

ACCT10001 Chapter Notes - Chapter 7: Corporate Finance, Cash Cash, Operating Cash Flow

Document Summary

Get access

Related Documents

ACCT10001 Chapter Notes - Chapter 7: Cash Flow, Current Liability

ACCT10001 Lecture Notes - Lecture 7: Cash Flow, Deferral, Capital Structure

ACCT10001 Lecture Notes - Lecture 2: Financial Statement, Share Capital, Railways Act 1921

Related Questions