Question 1

Cash flow from operating activities is often less stable from year to year than the amount of net income reported on the income statement.

Accepted Answer

Accrual accounting smooths out earnings by matching expenses to revenues providing a more stable performance measure.

Question 2

The amount of increase in accounts receivable is added to credit sales to calculate the amount of cash inflow from customers when using the direct method to prepare the operating activities section of the statement of cash flows.

Accepted Answer

Increases in accounts receivable are deducted from credit sales to determine cash collections from customers.

Question 3

When the direct method is used to prepare the operating activities section of the statement of cash flows,cash inflows from customers and cash outflows for depreciation are among the categories of cash flows likely to be reported.

Accepted Answer

Depreciation expense is a noncash expense.

Question 4

The direct method of preparing the operating activities section of the statement of cash flows shows increases and decreases in noncash current assets and current liabilities to arrive at cash flows from operating activities.

Accepted Answer

The indirect method of preparing the operating activities section of the statement of cash flows shows increases and decreases in noncash current assets and current liabilities to arrive at cash flows from operating activities. The direct method shows actual cash inflows and outflows from operating activities.

Question 5

The investing activities section of the statement of cash flows distinguishes between acquisitions of long-term assets that expand operating capacity and those that replace old,worn-out assets.

Accepted Answer

There is no differentiation on the statement between types of long-term asset purchases.

Quiz 12: Statement of Cash Flows

Cash flow from operating activities is often less stable from year to year than the amount of net income reported on the income statement.

The amount of increase in accounts receivable is added to credit sales to calculate the amount of cash inflow from customers when using the direct method to prepare the operating activities section of the statement of cash flows.

When the direct method is used to prepare the operating activities section of the statement of cash flows,cash inflows from customers and cash outflows for depreciation are among the categories of cash flows likely to be reported.

The direct method of preparing the operating activities section of the statement of cash flows shows increases and decreases in noncash current assets and current liabilities to arrive at cash flows from operating activities.

The investing activities section of the statement of cash flows distinguishes between acquisitions of long-term assets that expand operating capacity and those that replace old,worn-out assets.