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Actg 2010 Exam Review Notes.docx

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York University
ACTG 2010
Laura Simeoni

Chapter 5 – Cash Flow, Profitability, and The 2) Cash from financing – raising money, Cash Flow Statement paying investors/creditors, etc 3) Cash from investing – capital assets, long The Cash Cycle term assets; purchases/sales - There is always a lag b/w expenditure and Cash and cash equivalents = cash on hand and receipt of cash = CASH LAG in banks, short term liquid investments (GICs, o 4 cash lag calculation (ALL commercial paper, short term deposits, treasury AVERAGE TIMES!) bills, money market funds) .. also lines of credits 1. Inventory conversion period = receiving inventory Cash from operations (supplier) to selling it  Consumer payment 2. Payables deferral period =  Tax refunds  Interest received (can also be investment receipt of goods/services to too) paying supplier  Dividends received (can be investment too) 3. Receivables conversion  Payment for inventory, employees, period = delivery of good to suppliers receiving cash from customer Cash from investing activities 4. Inventory self-financing  Sale of capital assets period = date inventory paid  Collection of principal on loans  Proceeds from sale of securities like stocks to date it’s sold to customer o *Refer to page 236, excellent and bonds diagram.  Purchase of capital assets  Loans to entities o 4 main events:  Capitalized and cash spent on pre-opening 1. Goods received from supplier costs, oil exploration costs 2. Supplier paid Cash from financing 3. Inventory sold to customer  Sale of shares 4. Cash collected from  Proceeds from insurance customer  Bank loans  Dividends paid  Buying shares back (increases cash) Keep in mind that growing businesses are always  Repayment of debt principal different – may have a good record b/c the business just started. Direct and Indirect Method for CFO ONLY! Basic IFRS Assumptions - For direct method, measure strictly only 1. Unit of measure assumption - you have to cash received and cash paid use a currency to report your numbers 2. Entity concept – business related o *Careful: cash paid/received could be still influenced by transactions reported only, nothing personal increase/decrease in accounts 3. Going concern – business assumed to operate in the near future o Eg) If Revenue was 2000, but increase in accounts receivable was 4. Periodic reporting – minimum financial 200, means only 1800 cash was statements required annually collected from customer 3 sections for cash flow statements - For indirect method o *Always put Net income first, then 1) Cash from operations (CFO) – the depreciation … then worry about business’s day to day activities and regular current assets/current liabilities. operations - Ensure that you put NEGATIVE for cash paid, decrease in accounts payable, etc Non cash items for indirect method 1) Reduce spending within the business,  Depreciation/amortization (add) increases CFO  Gains (subtract) 2) Delay payments  Losses (add) 3) Selling more capital assets  Deferred income (add or subtract)  Writeoffs and writedowns of an asset (add) Chapter 6: Cash, Receivables and Time Value of Money Cash - Inflation, deflation + exchange rates influence cash amounts - Recall nominal money; value subjective to changes of dollar, higher not always truly better - Money value of cash goes down; inflation is too common. You record this as a loss Indirect Equation: Cash from operations = … Internal Controls – adds to reliability of F/S, without  NET INCOME (+/ -) o Non cash items (Depreciation, it no reliability/ must protect cash. Segregation of duties and bank reconciliation can help. Gains/losses, etc) o A/R Examples of Internal Control: o Inventory o Current assets  Proper Authorization and clearance from o A/P superiors/officers o Current Liabilities  Documentations – recorded by another Cash collection from customers during the period = person  Physical control revenue in period + beg a/r – ending a/r (*careful  Cameras that unearned R can play a role) Cash paid to employees = wage expense in period Time value of money = ppl want $ now than later n + wages owed @ beg – wages owed @ end Future Value (FV) = ( 1 + r ) x p (invested) … n = # of interest accumulations, r = interest rate for term, Cash paid to suppliers = p = principal invested Financial flexibility – good case study word; ability to react to threats and opportunities for a business Simple v Compounded Interest. Simple every term earn fixed amount. Compounded adds % on previous. Calculations 1) Operating cash flows to current liabilities Present Value = __________ x will receive  ratio = _______________ follows discount rate … used to find out future 2) Free Cash Flow = CFO – Capital income using present expenditure FV = what your money with be worth in the future, Manipulations to cash numbers investing today Example: Although cash is generally difficult to manipulate,  Bob got $5000 from his mother. He plans to management can change the timing of cash reported. Trust cash statements more than the invest it today for 5% interest annually for 6 other statements. Manipulation techniques: years. How much will he get at the end of 6 years?  Mary bought a car for $20,000. The interest 3. Cash flow occurs in every year beginning is 6% monthly and she must pay back the one year from the presen full amount plus interest at the end of 4 years. How much would she have to pay Examples of annuities: back? You are going invest into a business paying $5,000,000 at the end of each of the next five PV = what your future money is worth today years. As
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