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My CPA-FARmodule17

Notecards I made from Wiley's 2012 CPA Exam Review

QuestionAnswer
What are the three sections on the statement of cash flows? Provide a word on each. 1. Operating activities- related to net income, current asset/liability section of BS 2. Investing activities- related to the noncurrent section of BS 3. Financing activities- related to noncurrent liabilities and equity section of BS
Where does the presentation of cash flow differ from the direct and indirect method? Which does the FASB prefer? 1. Operating activities section 2. Direct
What is the primary purpose of the statement of cash flows? provide information about an entity's cash receipts and cash payments and disclose financing and investing activities
What are cash equivalents? short-term highly liquid investments that are readily convertible to known amounts of cash and close to maturity (3 months) so there is a negligible risk of change in value
What is generally included in operating activities? all transactions that are not investing and financing activities, includes delivering or producing goods for sale and providing services
What are some specific activities included in operating activities? (Direct method) CASH received from; customers, interest, dividends, sales of securities classified as trading CASH paid to/for; suppliers, operating expenses, interest, income taxes, securities classified as trading
What is generally included in investing activities? acquisition and disposition of long-term productive assets or securities that are not considered cash equivalents
What are some specific activities included in investing activities? Profit on proceeds from; sales of P,P,& E, stocks/ bonds (available for sale), bonds held to maturity, collection of loans (principal), selling components of company
What are some specific activities included in investing activities? Pay for CASH paid for; securities (trading), P,P,&E, stocks/bonds (available for sale/held to maturity), making loans to other entities, acquiring other businesses
What is generally included in financing activities? obtaining resources from owners and repaying amount borrowed
What are some specific activities included in financing activities? proceeds from; issuing common/preferred stock, reissuing treasury stock, issuing short/long term debt Paying; cash dividends, repurchase of common stock, repaying short term/ long term (lt-include capital lease obligations) loans (principal only)
What is reported in a separate schedule and general nature? What specifically is in it? 1. non cash investing and financing activities- involve no cash but have significant effect on prospective cash flows 2. acquiring asset through a capital lease, conversion of debt to equity, exchanges of non cash asset/liabilities, issue stock for asset
If the direct method is chosen for the statement of cash flows, is it necessary to do out the indirect method? Yes, indirect method must be presented as a separate accompanying schedule
How are the numbers derived using the direct method for the statement of cash flows? cash flow is derived from the accrual basis of net income i.e. Net sales + Beg AR - Ending AR - AR written off= cash received from customers
How is the indirect method created? 1.Start with income from continuing operations 2.Add back noncash items that were subtracted (amortization, depreciation) 3.Subtract noncash items added 4. adjust gains/losses on fixed assets to show not only gain/loss but cash
With the indirect method for the statement of cash flows, what disclosures are required? none required, disclosure of cash flows related to extraordinary items and discontinued operations is permitted though
What specifically would be added to net income under the indirect method? Decreases in; AR(net), inventory, prepaid expenses, deferred tax assets Increases in; AP, income tax payable, deferred tax liability, interest payable, other accrued payables, unearned revenue Other; loss disposing P,P&E, depreciation/amortization expen
What specifically would be subtracted from net income under the indirect method? Increases in; AR(net), inventory, prepaid expenses, deferred tax assets Decreases in; AP, income tax payable, deferred tax liability, interest payable, other accrued payables, unearned revenue
What are the steps to creating a statement of cash flows? 1. calculate the change in cash and cash equivalents 2. calculate net cash flows from operating activities 3. analyze other accounts and determine if change is a cash inflow or outflow and what change is classified as 4. prepare the formal statement
What happens on the statement of cash flows in the period an entity enters into a capital lease? payments made? interest? 1. noncash financing and investing activity at PV of minimum lease payments reported 2. amount that reduces principal reported as financing activity, cash outflow 3. direct method- report in operating activities section indirect method- disclosure only
Under IFRS, what is meant by a modified indirect method? shows revenues and expenses in operating activities and then reports changes in working capital accounts
Under IFRS what must happen at the bottom of the statement of cash flows? reconciliation with the amounts in the statement of cash flows and cash and cash equivalents from the statement of financial position
What are some examples of the difference of placement of items between IFRS and US GAAP? -Cash from purchase/sale of trading securities are operating -cash advances and loans are operating -income taxes disclosed separately on operating -entity can put interest/dividends received as operating or investing and paid as operating or financing
Created by: Bsantoro
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