7 Cash and the Statement of Cash Flows Free Online FlashCards

What counts as cash?

Cash includes currency on hand and funds available on demand, such as checking-account deposits.

What does the statement of cash flows explain?

It reports cash inflows and outflows over an accounting period, explaining how a company generated and used cash alongside accrual-basis income reporting.

What are the three cash-flow activity categories?

Operating, investing, and financing activities.

How does the cash-flow statement reconcile beginning and ending balances?

Beginning cash and cash equivalents + net change during the period = ending cash and cash equivalents.

What makes an investment a cash equivalent?

Cash equivalents are short-term, highly liquid investments that convert readily to known cash amounts and carry insignificant risk of value changes.

What original maturity generally qualifies an investment as a cash equivalent under U.S. GAAP?

Under U.S. GAAP, investments generally qualify only if their original maturity to the entity is three months or less.

Does a long-term note qualify once only three months remain until maturity?

No. Eligibility generally depends on original maturity to the entity, not the time remaining; a longer-term note does not qualify just because three months remain.

What kinds of cash flows are operating activities?

Operating activities include cash effects of principal revenue-producing activities and other flows not classified as investing or financing, such as customer receipts and payments to suppliers or employees.

What kinds of cash flows are investing activities?

Investing activities include acquiring or disposing of long-term assets and investments, and lending cash to or collecting it from borrowers.

What kinds of cash flows are financing activities?

Financing activities change a company's borrowings or contributed equity, including borrowing, repaying loan principal, issuing or repurchasing shares, and paying dividends.

What should determine a cash flow's classification?

Classify the actual receipt or payment by its underlying purpose, not merely by the income-statement or balance-sheet account associated with it.

How are interest and dividends paid generally classified under U.S. GAAP?

Under typical U.S. GAAP classification, interest paid and received are generally operating cash flows, while dividends paid are financing cash flows.