Ch. 12 Learnsmart
What 2 methods can be used to prepare the statement of cash flows?
Direct and Indirect
An increase in Prepaid Insurance ____ NI
Is subtracted from
When calculating net cash flow provided by operating activities, an increase in AP is _____ NI because payments to suppliers are ____ than new purchases
added to; less
Adding a decrease in prepaid insurance to NI eliminates the effect of recording insurance that
decreased net income, but did not impact cash
Issuing stock to owner's is classified as an ____ activity
financing
The payment of dividends is classified as a ___ activity
financing
When using the indirect method to prepare the operating activities section of the statement of cash flows, the first amount listed is ___
net income
A change in AR will be reported in the ____ activities section of the statement of cash flows prepared using the indirect method
operating
It is most important that a company's statement of cash flows reports a positive cash flows from ____ activities
operating
An increase in Inventory will be ____ NI when determining net cash flow provided by operating activities
subtracted from
Subtracting a decrease in Unearned Revenue from NI eliminates the effect of recording revenue _____
that increased NI, but did not impact cash this period
Subtracting an increase in AR from NI eliminates the effect of recording credit sales
that increased net income, but did not impact cash flow
Free cash flow is the amount of cash available to use to
1. build up the company's cash balance 2. repay existing financing 3. expand the business through additional investing activities
A purchase of intangible assets results in a ____ to net cash flow provided by ____ activities.
decrease; investing
Adding an increase in an account such as wages payable to NI eliminates the effect of recording wages expense that _____ this period.
decreased net income, but has not been paid in cash
3 steps in statement of cash flows
1. Determine the change in each balance sheet amount 2. Identify the cash flow category to which each account relates 3. Create schedules that summarize the operating, investing, and financing cash flows
