115 CFA
File: Financial Analysis - Reading 23 - 1. Classification of Cash Flows and Non-Cash Activities

1. Classification of Cash Flows and Non-Cash Activities

a. compare cash flows from operating, investing, and financing activities and classify cash flow items as relating to one of those three categories given a description of the items;

b. describe how non-cash investing and financing activities are reported;

c. contrast cash flow statements prepared under International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (US GAAP);

What three different activities are cash receipts and cash payments during a period are classified in the statement of cash flows?
1. Operating activities
2. Investing activities
3. Financing activities

What is Cash Flow from Operating activity (CFOs)?
CFOs involve the cash effects of transactions that enter into the determination of net income and changes in the working capital accounts (accounts receivable, inventory, and accounts payable). CFOs reflect the company's ability to generate sufficient cash from its continuing operations.

What are the five major operating cash flows?
1. cash received from customers
2. cash paid to suppliers and employees
3. interest and dividends received
4. interest paid
5. income taxes paid

What are considered Investing Activities?
Making and collecting loans, and acquiring and disposing of investments (both debt and equity) and property, plants, and equipment.

What are the two primary Financing Activities?
Financing Activities involve liability and owner's equity items, and include:
- Obtaining capital from owners and providing them with a return on (and a return of) their investments.
- Borrowing money from creditors and repaying the amounts borrowed.

Between "Dividends paid to stockholders" and "Interest paid to creditors", which is a Financing Activity and which is not?
Dividends paid to stockholders is a financing activity. Interest paid to creditors is not.

What are non-cash activities?
Some investing and financing activities do not flow through the statement of cash flows because they don't require the use of cash.

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