Operating Activities: Indirect Method definitions Flashcards
Operating Activities: Indirect Method definitions
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Indirect Method A process starting with net income and adjusting for non-cash items and working capital changes to determine operating cash flows. Net Income The bottom-line figure from the income statement, serving as the starting point for calculating operating cash flows. Operating Cash Flows Cash generated or used by a company's core business activities, excluding investing and financing transactions. Non-cash Expenses Items like depreciation or amortization that reduce net income but do not involve actual cash outflows. Depreciation Expense An allocation of the cost of tangible assets over their useful lives, representing wear and tear without cash movement. Amortization A systematic reduction of intangible asset value over time, similar to depreciation but for non-physical assets. Gain An increase in net income from selling assets above book value, not representing a cash inflow in operating activities. Loss A decrease in net income from selling assets below book value, not representing a cash outflow in operating activities. Current Asset Resources expected to be converted to cash within a year, such as inventory or receivables, excluding cash itself. Current Liability Obligations due within one year, like accounts payable, affecting cash flow calculations in the indirect method. Accounts Payable Amounts owed to suppliers for goods or services received, classified as a current liability on the balance sheet. Inventory Goods held for sale or production, classified as a current asset and impacting cash flow when its balance changes. Book Value The recorded value of an asset on the balance sheet, used to determine gains or losses upon sale. Income Statement A financial report showing revenues and expenses over a period, providing the net income figure for cash flow calculations. Working Capital The difference between current assets and current liabilities, with changes affecting operating cash flows.
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