Cost Accounting Notes
Intermediate Accounting
Review Exam 3 Chapter 4
Statement of Cash Flows (SCF): is an essential component within the set of basic financial statements.
Is presented for each period for which results of operations are provided.
Operating Activities: inflows and outflows of cash related to the transactions entering into the determination of net operating income.
Cash inflows include cash received from:
1. Customers from the sale of goods or services.
Ex./ collection of cash from customers
2. Interest and dividends from investments
Cash outflows include cash paid for:
1. The purchase of inventory.
2. Salaries, wages, and other operating expenses.
Ex./ payment of employee salaries,
3. Interest on debt.
Ex./ Payment of interest on a note payable.
4. Income taxes
Net cash flows from operating activities:
Difference between the inflows and outflows
Depreciation expenses
Reduces net income but not cash
Direct Method of Reporting the cash effect of each operating activity is reported directly in the SCF.
Directly related to principal revenue-generating activities
CFO = cash receipts from operating activities (-) cash payments from operating activites
Indirect Method cash flow from operating activities is derived indirectly by starting with reported net income and adding or subtracting items to convert that amount to a cash basis.
Starts with net income and works backwards to convert to cash
Net Income
+ Depreciation gains/ +losses
If A/R goes up (minus), If it goes down (add)
If Inventory goes up (minus), If it goes down (add)
Prepaid expenses goes up (minus)
Accrued expenses goes up (add)
= CFO
Investing Activities involve the acquisition and sale of (1) long-term assets used in the business and (2) non-operating investment assets.
Related to the acquisition and disposition of long-term assets.
Cash Inflows
1. The purchase of long lived assets used in the business (PP&E).
Ex./ purchase of
Review Exam 3 Chapter 4
Statement of Cash Flows (SCF): is an essential component within the set of basic financial statements.
Is presented for each period for which results of operations are provided.
Operating Activities: inflows and outflows of cash related to the transactions entering into the determination of net operating income.
Cash inflows include cash received from:
1. Customers from the sale of goods or services.
Ex./ collection of cash from customers
2. Interest and dividends from investments
Cash outflows include cash paid for:
1. The purchase of inventory.
2. Salaries, wages, and other operating expenses.
Ex./ payment of employee salaries,
3. Interest on debt.
Ex./ Payment of interest on a note payable.
4. Income taxes
Net cash flows from operating activities:
Difference between the inflows and outflows
Depreciation expenses
Reduces net income but not cash
Direct Method of Reporting the cash effect of each operating activity is reported directly in the SCF.
Directly related to principal revenue-generating activities
CFO = cash receipts from operating activities (-) cash payments from operating activites
Indirect Method cash flow from operating activities is derived indirectly by starting with reported net income and adding or subtracting items to convert that amount to a cash basis.
Starts with net income and works backwards to convert to cash
Net Income
+ Depreciation gains/ +losses
If A/R goes up (minus), If it goes down (add)
If Inventory goes up (minus), If it goes down (add)
Prepaid expenses goes up (minus)
Accrued expenses goes up (add)
= CFO
Investing Activities involve the acquisition and sale of (1) long-term assets used in the business and (2) non-operating investment assets.
Related to the acquisition and disposition of long-term assets.
Cash Inflows
1. The purchase of long lived assets used in the business (PP&E).
Ex./ purchase of