ACC 201 Lecture Notes - Lecture 1: Cash Flow, Income Statement, Interest Expense

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20 Sep 2016

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Document Summary

Cash flow vs. net income (not the same) Noncash revenues and expenses are part of net income. Operating cash inflows and outflows are not all reported in current net income. Cash + noncash assets = liabilities + equity. Cash = liabilities - noncash assets + equity. Add back anything that affect ni but not cash. Gains on sales of long term assets (-) First item listed on statement of cash flow is net income. Cash flow from operating activities - dividends - capital expenditures. Too much cash on hand means managers will spend on unnecessary things. Too low, risk of meeting obligations to creditors. Measures portion of income that was generated in cash. Worried when # becomes too small, less than <1. Means ni is greater than cash from operation. Less likely to experience a decline in earnings in the future. New corp. have negative cfoa because they are building inventory; positive ni.

Related Questions

Please use the Ross, et al âFundamentals of Corporate Financeâas a resource in solving

the problems.

Select all that are true

.a) Accounting emphasizes the determination of net income whilethe emphasis in Finance is on net cash flow.

b) Net cash flow generally differs from net income because someof the expenses and revenues listed on the income statement are notpaid out or received in cash during the year.

c) Net cash flow does not include after tax interestexpense.

d) Free cash flow is the cash flow actually available fordistribution to investors after the company has made all theinvestments in fixed assets, new products, and operating workingcapital necessary to sustain ongoing operations.

2. The following statements are about the cash flow statements.Select all that are true.

a) The CF statement is an expanded version of the companyâs cashaccount.

b) The CF statement allows interested parties to understandwhere its money is coming from and how it is being utilized.

c) The CF Statement works with a tangible variable calledcash.

d) It measures performance using accrual accounting.

e) It includes depreciation and amortization in itstransactions.

f) The aim of the CF statement is to measure the change in cashfrom the beginning of one accounting period to the end of anotheraccounting period.

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7. Consider theeffects of the independent transactions, a through i, on acompanyâs balance sheet, income statement, statement of cash flows,and statement of stockholdersâ equity.

a. The company purchasedinventory on credit.

b. The company sold allinventory purchased in transaction a) on credit (and formore than its cost).

c. The company collectedcash from customers from transaction b).

d. The company purchasedequipment with cash.

e. The company paid cash fora note payable that came due.

f. The company paidcash for interest on borrowings.

g. Wages were earned bycompany employees but not yet paid.

h. The company paid cash individends.

i. The companyreceived cash for the issuance of stock.

Complete the table below to explainthe effects and financial statement linkages. Use â+â to indicatethe account increases and âââ to indicate the account decreases (15pts).