- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 4. Analyzing Statements of Cash Flows I
- Subject 3. Cash Flows from Operating Activities: The Direct Method
CFA Practice Question
The interest revenue account has an ending balance of $4,600. The interest receivable account increased by $800. The total amount of cash flow from interest revenues was ______.
Correct Answer: $3,800
Interest received (cash flow) is equal to interest revenue plus the decrease in interest receivable or minus the increase in interest receivable. Interest received equals $4,600 - $800 = $3,800. In other words, the cash flow from interest revenue is equal to the recorded amount of interest revenue less the amount uncollected (the increase in interest receivable).
User Contributed Comments 9
| User | Comment |
|---|---|
| bokica | inverse relationship |
| Rotigga | I agree with the Analyst Notes answer. The Interest Revenue account includes the $800 of interest due to the firm that has not yet been paid. Since the $800 did not come in yet, we must net out $800 from the $4600 to get the proper incoming cash. |
| uberstyle | would it be appropriate to include a beginning balance on the Interest Revenue account, or are we to assume it is $0? Is that an assumption we are ok to make? |
| bobert | I always go at it from the exact opposite way... Does anyone know a good way to just make it click? |
| mordja | uberstyle, it wouldnt matter what the starting balance was, only the change will effect the calculations for preparation of the CF statement. Ie if the interest receivable account moved from $40,000 to $40,800 it would have the same affect. |
| Murrayman | The question asks, "total amount of cash flow from interest revenue". It does not ask for current period cash flow from interest revenue. This allows us to simply use the total amount in the Interest Revenue account (included are the amounts from prior periods). |
| surjoy | BIR + IR - EIR = Cash Flow IR - Int Rev BIR - Beginning IR E - Ending IR So, IR - (Increase in IR) = Cash Flow Cash Flow = 4600 - 800 = 3800 |
| johntan1979 | Int Rev + Change in Int Receivable = Cash Flow Increase in Int Receivable means you collect less, -ve cash flow, and in this case, -$800 |
| gill15 | I hate accounting because I dont want to learn it. I get everything right and I just think of it this way. When its cash received do the opposite of Assets(Eg. Cash received by Customere = Rev - (Increase in A/R). the minus sign is opposite of an increase in Assets. For Cash Paid do the opposite of Liabilities. I dont like using brain. |