Accounting 2 Dersi 8. Ünite Sorularla Öğrenelim

What is the equation for inventory turnover?

The equation for inventory turnover equals the
cost of goods sold divided by the average inventory.

What does cash flows from financing activities refer to?

Financing activities affect the long term liability and equity accounts. So cash flows from financing activities is about the firm’s capital structure and owners of the entity. Cash inflows from financeactivities include issuance of shares, proceeds from selling treasury shares, loans and borrowings.

What does the statement of cash flows report?

The statement of cash flows reports:

• Where cash came from (receipts) and
how cash was spent (payments)
• Why cash increased or decreased during
period
• Covers a span of time and is dated the
same as the income statement

How do we calculate payments for operating expense?

These payments will exclude interest and income tax. To compute payments for operating expenses you will need Prepaid Expenses, Accrued Liabilities, and Other Operating Expenses.

Why are cash flows important?

A successful business must get more cash than it spends to produce its goods or services. However, due to timing differences, profit and cash flows act differently. If the profit is insufficient but the cash flows are sufficient, the business can carry out its activities in the short term, but might face problems in the long term. Therefore, business must have strong cash flows as well as the net profit.

Where does cash generally come from?

Cash generally comes from the sources that mentioned below:
• Capital — setting up business, or getting new partners;
• Borrowing — customers, vendors, employees, and financial institutions;
• Conversion of assets to cash — selling inventory, equipment, plant, property or collection of
accounts receivable.

What do cash inflows from investing activities include?

Cash inflows from investing activities include sales of plant assets, long term investments, collections of loans to others and etc.

What does the inventory turnover ratio show? 

The inventory turnover ratio shows how effectively inventory is managed by comparing cost of goods sold with average inventory for a period.

What is the difference between direct method and indirect method in cash  lows? 

Direct method identify actual cash flows; indirect method reconciles net income to cash flow from operations.

What kind of transactions does cash flows statement take into account?

Cash flows statement takes into account the transactions that require cash, related to the activities whether or not they provide income.

How is the receivables turnover calculated?

Receivables turnover ratio can be calculated by dividing the net value of sales (if possible credit sales) during a given period by the average accounts receivable during the same period.

What does reporting operating cash flows demonstrate?

In this method, cash flow items and amounts are reported. This method clearly demonstrates cash amounts paid and collected for business activities. This method is easy to apply. This method requires more computations than indirect method. To compute operating cash flows, we use income statement and changes in balance sheet accounts.

What computations are necessary to calculate payments to suppliers?

It includes two separate computations:
• Payments for operating expenses.
• Payments for inventory.

To calculate payments for inventory you will need cost of goods sold (from income statement), Inventory and Accounts Payable (from balance sheet). This computation will convert cost of goods sold to cash basis.

In what way are cash and profit different concepts?

Cash and profit are different concepts and reflect different amounts. Thus, so increase/ decrease amount of profit isn’t equal to increase/decrease amount of cash and cash equivalents.

What are the operating activities?

Operating activities create revenue or expense in entity’s business and these activities affect the income statement.

What are the investing activities?

Investing activities are purchases and sales of non-current assets, which are important for an entity’s medium and long term operations.

What are the types of cash flow activities?

In the statement of cash flows, there are three basic types of cash flow activities. These activities are:

• Operating activities
• Investing activities
• Financing activities

What do Ffnancing activities relate to?

Financing activities relate to noncurrent iabilities and shareholders’ equity. These
activities may include to obtain cash and pay cash to investors and creditors. Issuing shares, borrowing money, buying and selling treasury shares, paying cash dividends are financing activities.

What methods can be used for reporting operating cash flows?

Two different methods can be used for reporting operating cash flows. These are;
• Indirect Method
• Direct Method

The indirect method adjusts accrual basis net profit or loss for the effects of
non-cash transactions. The direct method shows each major class of gross cash receipts and gross cash payments.

Where are indirect or direct methods are used?

Indirect or direct methods are only used in the operating cash flows section. These methods use different computations but produce the same amount of cash from operating activities.

What do we need to calculate cash collections from customers?

To calculate cash collections from customers you will need sales revenue (from income statement) and beginning and ending balance of accounts receivable.