Question 1

The investing activities section of the statement of cash flows reports cash receipts and payments that increase or decrease long-term liabilities.

Accepted Answer

The investing activities section of the statement of cash flows reports cash receipts and payments related to the acquisition and disposal of long-term assets, such as property, plant, and equipment, and investments. It does not report activities related to long-term liabilities. Cash receipts and payments that increase or decrease long-term liabilities are reported in the financing activities section of the statement of cash flows.

Question 2

The three sections of the statement of cash flows report only activities that involve cash.

Accepted Answer

The statement of cash flows only reports on activities that involve cash, including operating, investing, and financing activities. Non-cash items, such as depreciation or amortization, are adjustments made to net income to arrive at the cash flow from operating activities.

Question 3

The statement of cash flows shows where cash came from and how cash was spent.

Accepted Answer

The statement of cash flows tracks the inflow and outflow of cash, showing where it originated and where it went.

Question 4

List and discuss three ways in which the statement of cash flows helps financial statement users.

Accepted Answer

The answer of List and discuss three ways in which...

Question 5

The balance sheet shows why cash increased or decreased.

Accepted Answer

The balance sheet does not show why cash increased or decreased

Question 6

The operating activities section of the statement of cash flows reflects the cash flows that affect current assets and current liabilities.

Accepted Answer

The operating activities section of the statement of cash flows shows the cash inflows and outflows related to a company's primary operations, which include transactions involving current assets and current liabilities. Examples of operating activities include sales revenue, payment of salaries and wages, payment of suppliers, and collection of accounts receivable.

Question 7

A business's cash receipts and cash payments for a specific period are reported on a(n)________.

Accepted Answer

Cash receipts and cash payments for a specific period are reported on the statement of cash flows, which provides information on a business's cash inflows and outflows during a given period. The income statement reports a business's revenue and expenses, while the balance sheet shows the company's assets, liabilities, and equity at a specific point in time. A cash reconciliation statement is not a standard financial statement but may be prepared to reconcile the difference between the cash balance reported by the bank and the company's records.

Question 8

The operating activities section of the statement of cash flows includes activities that create revenue or expenses for the entity's business.

Accepted Answer

The operating activities section of the statement of cash flows includes cash inflows and outflows that result from the entity's primary business activities, such as sales of goods or services, payments to suppliers, employee salaries, and other expenses directly related to operating the business.

Question 9

The statement of cash flows is the link between the accrual-based income statement and the cash reported on the balance sheet.

Accepted Answer

The statement of cash flows explains the changes in cash and cash equivalents during a period, reconciling the accrual-based income statement with the cash balance reported on the balance sheet. Therefore, the statement of cash flows acts as a bridge between the income statement and balance sheet.

Question 10

The statement of cash flows is dated the same as the balance sheet.

Accepted Answer

The statement of cash flows is dated the same as the income statement.

Question 11

The statement of cash flows helps users ________.

Accepted Answer

The statement of cash flows provides information about how a company obtains and uses cash, which can be used to evaluate management decisions. It does not predict future net income, evaluate earnings per share, or predict the growth of assets.

Question 12

The financing activities section of the statement of cash flows includes activities that affect current assets and current liabilities.

Accepted Answer

The financing activities section of the statement of cash flows includes activities related to borrowing from and repaying debt to creditors and transactions with the company's own equity, not activities that affect current assets and current liabilities.

Question 13

One of the purposes of the statement of cash flows is to ________.

Accepted Answer

The statement of cash flows helps to predict the ability of a company to pay debts and dividends by showing the sources and uses of cash in operating, investing, and financing activities during a specific period of time. It does not determine operating income, calculate inventory turnover, or evaluate the level of debt and leverage of a company.

Question 14

The financing activities section of the statement of cash flows includes paying dividends and making payments on long-term liabilities.

Accepted Answer

The financing activities section of the statement of cash flows includes activities related to obtaining and repaying funds from creditors and investors, which may include making payments on long-term liabilities and paying dividends to shareholders.

Question 15

Which of the following is TRUE of the statement of cash flows?

Accepted Answer

The statement of cash flows covers a specific period of time, usually a year, and is dated the same as the income statement. Answer A is incorrect because the maturity of long-term debt is not reported on the statement of cash flows, but rather on the balance sheet. Answer B is incorrect because the statement of cash flows focuses on quantitative information, such as cash inflows and outflows, rather than qualitative information. Answer D is also incorrect because the statement of cash flows does not show how profits or losses were generated – that information is reported on the income statement.

Question 16

The statement of cash flows explains why net income as reported on the income statement does not equal the change in the cash balance.

Accepted Answer

The statement of cash flows explains the sources and uses of cash during a period which can result in differences between the net income reported on the income statement and the change in the cash balance. These differences can occur due to non-cash transactions, such as depreciation, or changes in working capital accounts, such as accounts receivable or accounts payable.

Question 17

A company purchased machinery by issuing a long-term note payable.This is an example of a non-cash investing and financing activity for the statement of cash flows.

Accepted Answer

Non-cash investing and financing activities are transactions that do not involve the actual receipt or payment of cash. Issuing a long-term note payable to purchase machinery is an example of a non-cash financing activity.

Question 18

Investors and management use the statement of cash flows to evaluate a firm's profitability.

Accepted Answer

Investors and creditors use the statement of cash flows to evaluate managers' decisions.

Question 19

Which of the following statements accurately describes the statement of cash flows?

Accepted Answer

The statement of cash flows explains how cash and cash equivalents have changed during a period, and it reconciles the cash reported on the balance sheet with the accrual-based net income reported on the income statement. It provides information about operating, investing, and financing activities that affect liquidity, not debt maturity or earnings per share.

Question 20

The cash paid for the purchase of equipment will typically be shown in the investing activities section of the statement of cash flows.

Accepted Answer

The purchase of equipment is a capital expenditure and is considered an investing activity since it pertains to the acquisition of long-term assets. As a result, the cash paid for equipment will typically be shown in the investing activities section of the statement of cash flows.

Quiz 16: The Statement of Cash Flows