Chapter 5

• Cash equivalent - A short-term, highly liquid investment with an original maturity of less than three months, and
subject to an insignificant risk of changes in value.
• Cash flows from financing activities - Cash inflows and outflows related to external sources of financing (owners
and creditors) for the enterprise.
• Cash flows from investing activities - Cash inflows and outflows related to the acquisition or sale of productive
facilities and investments in the securities of other companies.
• Cash flows from operating activities - Cash inflows and outflows directly related to earnings from normal
operations.
• Direct method - A method of presenting the operating activities section of the statement of cash flows that reports
components of cash flows from operating activities as gross receipts and gross payments.
• Free cash flow - Cash flow from operating activities less dividends less capital expenditures.
• Indirect method - A method of presenting the operating activities section of the statement of cash flows that
adjusts net earnings to compute cash flows from operating activities.
• Non-cash investing and financing activities - Transactions that do not have direct cash flow effects; they are
reported as a supplement to the statement of cash flows in narrative or schedule form.