# What's the CFO?

Net sale: 500 increase in account receivable 20 decrease in account payable 40 increase in inventory 30 sale of new common stock 100 Repayment of debt 10 depreciation 2 net income 100 interest expense on debt 5

97?

100 +2 -20+40-30 = 92

and isn’t interest expense a CFO outflow in the indirect method?

correctiong: 100+2-20-40-30 = 12

Thank you very much hopetobeat for showing the process of your calculation, yes, 12 is right map1, if you don’t want to show your process, please don’t follow my threads, thanks for your cooperations

Interest expense is already included in net income.

increase in account receivable 20: you are on the buy side, that’s a CFO outflow, deduct from NI decrease in account payable : 40 you are paying liabilities, DEDUCT from NI (edited here) increase in inventory 30 : you are on the buy side, that’s a CFO outflow, deduct from NI sale of new common stock 100 : that’s CFF inflow Repayment of debt 10 : that’s CFF outflow depreciation 2 : noncash expense, add back to NI net income 100 interest expense on debt 5: under USGAAP interest paid is CFO outflow, add it back 100-20-40-30+2+5=17

Net sale: 500 increase in account receivable 20 decrease in account payable 40 increase in inventory 30 sale of new common stock 100 Repayment of debt 10 depreciation 2 net income 100 interest expense on debt 5 100-20-40-30+2 = 12

this is my math 100 - 20 - 40 - 30 + 5 + 2 = 17

Don’t add back the interest expense

pepp Wrote: ------------------------------------------------------- > this is my math > > 100 - 20 - 40 - 30 + 5 + 2 = 17 (\$5) is already taken into consideration in the net income; therefore, it’s not used. Should be \$12…

interest expense is part of CFO. interest is always part of CFO, recieved or given doesn’t matter. if it is given out, must add it back to CFO, if it is received then must subtract from the CFO.

Interest expense was already subtracted from EBIT and the decrease in cash associated with it is already included in ‘net income’ when computing CFO using the indirect method. If you were using the direct method, you would account for interest expense by subtracting it from CFO. Someone please corroborate

indirect method: nidp ir cfo=netincome + depreciation + delta payable - delta inventory - delta receivable and interest expense already included in netincome

In indirect method, you do not need to look at Interest Expense, since you are starting with the NI, and that already includes the Int. Expense. So 12 is the right answer above. CP

This is really straightforward question and the answer is 12. Hopetobeat, supersharpshooter, soxboys21, cfaisok and cpk123 (as always) are correct! Milos

> map1, if you don’t want to show your process, please don’t follow my threads, thanks for your cooperations map1 gives more detailed answers than anyone else. This is also a very basic question, except for the interest part which gets some people.

repayment of debt is a cash flow from financing? b/c I thought that CFF was only repayment of long term debt, what do you classify it as if it does not specify long term or short term debt?

All financial dept is classified as CFF (both long and short term dept), while trade payables (which are operating in nature) are classified as CFO. Milos