Question 1

A decrease in accounts payable is added to net income in the operating activities section of the statement of cash flows prepared under the indirect method.

Accepted Answer

A decrease in accounts payable is deducted from net income in the operating activities section of the statement of cash flows prepared under the indirect method.

Question 2

Noncash investing and financing transactions,such as the exchange of common stock to purchase assets,represent significant investing and financing activities and are disclosed in a supplementary schedule that is attached to the statement of cash flows.

Accepted Answer

Noncash investing and financing transactions are disclosed in a supplementary schedule that is attached to the statement of cash flows.

Question 3

The sale of land for cash would be classified as a cash inflow from a financing activity.

Accepted Answer

The sale of land for cash would be classified as a cash inflow from an investing activity, as it involves the sale of a long-term asset.

Question 4

Investments in stock are reported as an investing activity on the statement of cash flows.

Accepted Answer

When purchasing stocks, cash is being used for investing purposes, therefore it is reported as an investing activity on the statement of cash flows.

Question 5

Cash inflows that enter into the determination of net income are classified as financing activities on a statement of cash flows.

Accepted Answer

Cash inflows that enter into the determination of net income are classified as operating activities on a statement of cash flows, not financing activities. Financing activities are typically cash flows related to borrowing, issuing stock, or paying dividends.

Question 6

The activity from the balance sheet to be presented in the financing activities section of the statement of cash flows is based on an analysis of stockholders' equity only.

Accepted Answer

The activity from the balance sheet to be presented in the financing activities section of the statement of cash flows is based on an analysis of both stockholders' equity and liability accounts.

Question 7

The issuance of common stock in exchange for a building would appear both as a cash inflow in the financing activities section of the cash flow statement and also as a cash outflow in the investing activities section.

Accepted Answer

The issuance of common stock in exchange for a building would only appear as a non-cash investing activity in the investing activities section of the cash flow statement. It would not be reported as a cash inflow or outflow in the financing activities section.

Question 8

The amount for "net cash from operating activities" will be different depending on if the direct method or the indirect method is used to construct the statement of cash flows.

Accepted Answer

The same amount for "net cash from operating activities" will be obtained regardless of whether the direct method or the indirect method is used to construct the statement of cash flows.

Question 9

Under the indirect method of determining the net cash from operating activities on the statement of cash flows,increases in current assets such as accounts receivable are added to net income.

Accepted Answer

Increases in current assets are deducted from net income.In this example, if accounts receivable increases, net income will be decreased because sales were recognized where cash was not collected.

Question 10

All SEC-registered firms must issue a statement of cash flows,in addition to the income statement and balance sheet.

Accepted Answer

The Securities and Exchange Commission (SEC) requires all registered firms to prepare financial statements, including a statement of cash flows, income statement, and balance sheet.

Question 11

The indirect method of reporting the cash flows from operating activities on the statement of cash flows is the method most widely used in practice.

Accepted Answer

The indirect method is indeed the method most widely used in practice. It involves starting with net income and making adjustments to convert it to operating cash flows. The direct method, on the other hand, involves reporting actual cash receipts and payments for operating activities, but it is less commonly used due to its complexity and additional cost.

Question 12

On the statement of cash flows,the indirect method adjusts net income to determine the net cash flows from operating activities.

Accepted Answer

The indirect method starts with net income and makes adjustments to reconcile net income to the net cash flows from operating activities.

Question 13

Cash flow activities that include the cash effect of transactions that create revenues and expenses and thus enter into the determination of net income are classified as operating activities on the statement of cash flows.

Accepted Answer

This statement is true according to Generally Accepted Accounting Principles (GAAP), under which operating activities include cash inflows and outflows from day-to-day business operations such as sales, purchases of inventory, and payment of salaries. These activities affect the determination of net income on the income statement, and their cash effects are therefore included in the operating section of the statement of cash flows.

Question 14

A statement of cash flows indicates the sources and uses of a firm's cash during a period.

Accepted Answer

A statement of cash flows is a financial statement that shows the changes in a company's cash and cash equivalents during a period, indicating the sources of cash inflows and the uses of cash outflows. It is an important tool for financial analysis and helps investors, creditors, and the management to understand the cash position of a company.

Question 15

Transactions that involve the acquisition or sale of long-term assets are generally classified as investing activities on the statement of cash flows.

Accepted Answer

This is correct as investing activities involve transactions related to the acquisition or sale of long-term assets such as property, plant, and equipment, investments, and intangible assets. These activities are reported as a separate section on the statement of cash flows.

Question 16

Under the indirect method of determining the net cash from operating activities on the statement of cash flows,depreciation is subtracted from the net income for the period.

Accepted Answer

Under the indirect method of determining the net cash from operating activities on the statement of cash flows, depreciation is added to the net income for the period.

Question 17

For a statement of cash flows,firms are required to classify their cash activities into three categories: operating,investing,and borrowing.

Accepted Answer

For a statement of cash flows, firms are required to classify their cash activities into three categories: operating, investing, and financing.

Question 18

Cash received on the sale of equipment would be considered a financing activity on a statement of cash flows.

Accepted Answer

The purchase or sale of long-term assets, such as equipment, would be considered an investing activity on the statement of cash flows.

Question 19

Companies can use two different methods to report the amount of cash flow from their operating activities on the statement of cash flows.

Accepted Answer

The two methods are the direct method and the indirect method.

Question 20

Determining the cash flows from operating activities generally requires analyzing each item on the income statement as well as the current asset and current liability accounts.

Accepted Answer

Cash flows from operating activities can be determined by analyzing each item on the income statement as well as the current asset and current liability accounts. This is because operating activities primarily involve transactions that affect these accounts, such as sales/revenues, expenses, accounts receivable, accounts payable, and inventory.

Quiz 15: Statement of Cash Flows