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Operating Activities: Direct Method definitions Flashcards

Operating Activities: Direct Method definitions
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  • Direct Method
    Approach for operating cash flows that sums actual cash inflows and outflows, focusing on specific cash transactions rather than net income adjustments.
  • Operating Activities
    Day-to-day business transactions involving cash receipts from customers and cash payments to suppliers, interest, and taxes.
  • Cash Flow Statement
    Financial report detailing cash inflows and outflows from operating, investing, and financing activities over a period.
  • Accounts Receivable
    Asset account tracking amounts owed by customers for sales made on credit, crucial for determining cash collected from customers.
  • Accounts Payable
    Liability account representing amounts owed to suppliers for purchases made on credit, used to calculate cash paid to suppliers.
  • T Account
    Visual tool in accounting shaped like a 'T' used to track increases and decreases in specific accounts, aiding in cash flow calculations.
  • Inventory
    Current asset account reflecting goods held for sale, with changes affecting calculations of purchases and cash paid to suppliers.
  • Interest Payable
    Liability account showing interest expense incurred but not yet paid, used to determine cash paid for interest.
  • Income Tax Payable
    Liability account for income taxes owed but not yet paid, essential for finding cash paid for taxes.
  • Operating Expenses
    Costs related to core business operations, including interest and income taxes, often requiring T account analysis for cash flow.
  • Accrual-Basis Accounting
    Accounting method recognizing revenues and expenses when earned or incurred, not necessarily when cash is exchanged.
  • Cost of Goods Sold
    Expense account representing the cost of inventory sold during a period, impacting inventory and purchase calculations.
  • Beginning Balance
    Amount present in an account at the start of a period, used as a reference point in T account analysis.
  • Ending Balance
    Amount remaining in an account at the end of a period, crucial for reconciling cash flows using T accounts.
  • Purchases
    Acquisitions of inventory during a period, often made on credit, affecting both inventory and accounts payable accounts.