Question 1

The operation activities section of the cash flow statement will exclude changes in all noncurrent balance sheet accounts.

Accepted Answer

False

Question 2

A cash flow statement will be divided into separate sections reporting cash flows resulting from operating activities,investing activities,financing activities and shareholder equity activities.

Accepted Answer

A cash flow statement is divided into three sections: cash flows from operating activities, investing activities, and financing activities. There is no separate section for shareholder equity activities; changes in shareholder equity are reflected in the financing activities section.

Question 3

An increase in a noncash asset will be reported as a source of cash on the cash flow statement.

Accepted Answer

An increase in a noncash asset, such as accounts receivable or inventory, represents a use of cash rather than a source of cash since cash is tied up in the asset. On the cash flow statement, this increase is reflected as a deduction from net income in the operating activities section.

Question 4

Short-term highly liquid investments such as treasury bills which may be included on the balance sheet within marketable securities will be considered cash in preparation of the cash flow statement.

Accepted Answer

Short-term highly liquid investments such as treasury bills are considered cash equivalents and are included in the Cash and Cash Equivalents section on the balance sheet. Therefore, they are considered cash for the purposes of preparing the cash flow statement.

Question 5

If an entity acquires a capital asset and pays for it in full with the issuance of long-term debt,a use of cash will be reported under investing activities and a source of cash of the same amount will be reported under financing activities.

Accepted Answer

The answer of If an entity acquires a capital asset...

Question 6

Accounts receivable increased by $100,000 and accounts payable decreased by $50,000.What will be the net result in terms of cash flow?
A) Cash increased by $50,000.
B) Cash decreased by $50,000.
C) Cash increased by $150,000.
D) Cash decreased by $150,000.

Accepted Answer

An increase in accounts receivable indicates that sales were made on credit, reducing cash flow by $100,000. A decrease in accounts payable means that cash was used to pay off liabilities, reducing cash flow by $50,000. The net result is a decrease in cash flow by $150,000.

Question 7

Which of the following statements is true about the operating activities section?
A) In a direct method cash flow statement,the section starts with net income.
B) Net income is not included in an indirect method cash flow statement.
C) Regardless of the method used,net cash from operating activities is the same.
D) The indirect method results in a higher amount for cash from operating activities if there is net income and in a lower amount if there is a net loss.

Accepted Answer

Regardless of the method used, the net cash from operating activities is the same because both methods ultimately reconcile net income to net cash provided by operating activities.

Question 8

If an entity receives cash from the issuance of long-term debt during a year and also pays out cash to reduce a long-term debt,both a cash inflow and a cash outflow will be reported in the financing activities section of the cash flow statement.

Accepted Answer

Cash received from the issuance of long-term debt is a cash inflow in financing activities, while cash paid out to reduce long-term debt is a cash outflow in financing activities. Both transactions would be reported in the financing activities section of the cash flow statement.

Question 9

If an entity both sells capital assets and purchases capital assets during the year,only the net cash inflow or outflow will be reported in the investing section of the cash flow statement.

Accepted Answer

Each sale and purchase of capital assets is reported separately in the investing section of the cash flow statement to provide a clear picture of the company's investing activities.

Question 10

In which section of the cash flow statement will dividends payable be reported?
A) Operating activities
B) Investing activities
C) Financing activities
D) In none of the sections - it is not a cash flow

Accepted Answer

The answer of In which section of the cash flow...

Question 11

Using the indirect method,the operating activities section of the cash flow statement is constructed starting with net income and adjusting it to a cash basis.

Accepted Answer

This is true. The indirect method of constructing the operating activities section of the cash flow statement starts with net income and adjusts it to a cash basis by adding back non-cash expenses and subtracting non-cash gains.

Question 12

Since depreciation expense is added back to net income in the operating section of an indirect method cash flow statement,if depreciation expense increases cash flows will similarly increase.

Accepted Answer

Although depreciation expense is added back to net income in the operating section, it is a non-cash expense, meaning it does not use up actual cash. Therefore, an increase in depreciation expense does not result in a corresponding increase in cash flows.

Question 13

A decrease in a liability will be reported as a use of cash on the cash flow statement.

Accepted Answer

When a liability decreases, it means the company has paid off some of its debt or obligations, which is a use of cash as it reduces the amount of money that the company has on hand. Therefore, a decrease in a liability will be reported as a use of cash on the cash flow statement.

Question 14

If the direct method to prepare the operating section of the cash flow statement is used instead of the indirect method,changes will be required in the financing and investing sections too.

Accepted Answer

The choice between the direct and indirect methods for preparing the operating section of the cash flow statement does not affect the financing and investing sections, as these sections are prepared using the same approach regardless of the method chosen for the operating section.

Question 15

Which of the following statements is correct about cash flows?
A) Net income is a use of cash.
B) Net loss is a source of cash.
C) A decrease in noncash assets is a source of cash.
D) An increase in noncash assets is a source of cash.

Accepted Answer

A decrease in noncash assets, such as accounts receivable or inventory, represents a conversion of those assets into cash, thus providing a source of cash. Net income is not a use of cash, as it represents the profit earned by the firm after all expenses have been paid. Net loss is not a source of cash, as it represents a negative amount of profit. An increase in noncash assets represents a use of cash, as the firm must invest cash in order to acquire more noncash assets.

Question 16

When an entity uses the direct method in the operating activities section of the cash flow statement it will also have to report operating cash flows under the indirect method.

Accepted Answer

This is because the direct method only reports the actual cash inflows and outflows from operating activities, while the indirect method adjusts net income for non-cash items and changes in working capital to arrive at the operating cash flows. However, some entities may choose to only report using the direct method and not include the indirect method in their financial statements.

Question 17

Regardless of the basis of accounting used,dividends will always be reported as a use of cash in the financing activities section of the cash flow statement.

Accepted Answer

The answer of Regardless of the basis of accounting used,dividends...

Question 18

In which section of the cash flow statement will the cash outflow from purchasing land be reported?
A) Operating activities
B) Investing activities
C) Financing activities
D) In none of the sections - it is not a cash flow

Accepted Answer

The cash outflow from purchasing land is a cash flow related to investing activities and will be reported in the investing activities section of the cash flow statement.

Question 19

Inventory decreased by $100,000 and wages payable decreased by $50,000.What will be the net result in terms of cash flow?
A) Cash increased by $50,000.
B) Cash decreased by $50,000.
C) Cash increased by $150,000.
D) Cash decreased by $150,000.

Accepted Answer

Inventory decreased by $100,000, which means that the company sold $100,000 worth of inventory, resulting in an increase in cash flow. 
Wages payable decreased by $50,000, which means that the company paid off $50,000 in wages, resulting in a decrease in cash flow. 
Therefore, the net result is an increase in cash flow of $50,000 (100,000-50,000).

Question 20

Accounts payable increased by $100,000 and accounts receivable decreased by $50,000.What will be the net result in terms of cash flow?
A) Cash increased by $50,000.
B) Cash decreased by $50,000.
C) Cash increased by $150,000.
D) Cash decreased by $150,000.

Accepted Answer

An increase in accounts payable means the company has delayed cash payments, increasing cash flow by $100,000. A decrease in accounts receivable means the company has collected cash, increasing cash flow by $50,000. Together, these changes result in a net cash increase of $150,000.

Quiz 14: How Well Am I Doing Financial Statement Analysis

The operation activities section of the cash flow statement will exclude changes in all noncurrent balance sheet accounts.

A cash flow statement will be divided into separate sections reporting cash flows resulting from operating activities,investing activities,financing activities and shareholder equity activities.

An increase in a noncash asset will be reported as a source of cash on the cash flow statement.

Short-term highly liquid investments such as treasury bills which may be included on the balance sheet within marketable securities will be considered cash in preparation of the cash flow statement.

If an entity acquires a capital asset and pays for it in full with the issuance of long-term debt,a use of cash will be reported under investing activities and a source of cash of the same amount will be reported under financing activities.

Accounts receivable increased by $100,000 and accounts payable decreased by $50,000.What will be the net result in terms of cash flow?

Which of the following statements is true about the operating activities section?

If an entity receives cash from the issuance of long-term debt during a year and also pays out cash to reduce a long-term debt,both a cash inflow and a cash outflow will be reported in the financing activities section of the cash flow statement.

If an entity both sells capital assets and purchases capital assets during the year,only the net cash inflow or outflow will be reported in the investing section of the cash flow statement.

In which section of the cash flow statement will dividends payable be reported?

Using the indirect method,the operating activities section of the cash flow statement is constructed starting with net income and adjusting it to a cash basis.

Since depreciation expense is added back to net income in the operating section of an indirect method cash flow statement,if depreciation expense increases cash flows will similarly increase.

A decrease in a liability will be reported as a use of cash on the cash flow statement.

If the direct method to prepare the operating section of the cash flow statement is used instead of the indirect method,changes will be required in the financing and investing sections too.

Which of the following statements is correct about cash flows?

When an entity uses the direct method in the operating activities section of the cash flow statement it will also have to report operating cash flows under the indirect method.

Regardless of the basis of accounting used,dividends will always be reported as a use of cash in the financing activities section of the cash flow statement.

In which section of the cash flow statement will the cash outflow from purchasing land be reported?

Inventory decreased by $100,000 and wages payable decreased by $50,000.What will be the net result in terms of cash flow?

Accounts payable increased by $100,000 and accounts receivable decreased by $50,000.What will be the net result in terms of cash flow?