Chapter 11: Statement of Cash Flows

3 categories

1) cash flows from operating activities 2) cash flows from investing activities 3) cash flows from financing activities

*PART A*

CLASSIFICATION OF CASH FLOW ACTIVITIES

Which of the following represents the first step in preparing a statement of cash flows in the correct order?

calculate the net cash flows from operating activities

The starting point for preparing the operating activities section using the indirect method is:

net income

When using the indirect method to prepare the operating activities section of the statement of cash flows, the first amount listed is ___ ___

net income

Gains and losses on the sale of long-term assets represent common ____ items needing adjustment under the indirect method.

nonoperating

Which of the following are common noncash items requiring adjustment to net income under the indirect method?

revenues expenses that never affect cash ex. depreciation expense and amortization expense

The financial statement that provides information about cash receipts and cash disbursements for the period is the

statement of cash flows.

Which of the following would result in a cash outflow from investing activities?

Purchase of a machine for cash.

Which of the following would result in a cash inflow from investing activities?

Sale of a machine for cash.

Which of the following are nonoperating items that require adjustments under the indirect method?

gains and losses on the sale of land, buildings, equipment

Investing Activities

purchase/sale of long-term assets and current investment

*PART B*

PREPARING THE STATEMENT OF CASH FLOWS

A statement of cash flows provides a summary of cash inflows and cash outflows during the reporting period

inflow = received by the company outflow = paid by the company

Joann is preparing a statement of cash flows as part of a homework assignment. She hopes to find a check figure that will help her assess the accuracy of her results. What should Joann do to quickly find a check figure?

Calculate the change in the beginning and ending balance of cash

____ activities include cash receipts and cash payments for transactions relating to revenue and expense activities.

Operating

Which of the following represents the final step in preparing a statement of cash flows in the correct order?

combine operating, investing, and financing activities

Cash flows from ___ activities include both inflows and outflows of cash from the external funding of a business.

financing

Operating Activities

inclu. cash receipts and cash payments

Financing Actvities

inclu. transactions with lenders like borrowing money and repaying debt, and with stockholders,

The statement of cash flows provides summary information about cash ___ , and cash __ during the year.

inflows; outflows

Cash transactions involving the purchase and sale of long-term assets and current investments are classified on the statement of cash flows as ____ activities.

investing

Noncash items, nonoperating items, and changes in current assets and liabilities are necessary adjustments to ___ ___ to prepare the operating section for the indirect format of the statement of cash flows.

net income

Depreciation expense and amortization expense represent ___ items requiring adjustments to net income under the indirect method.

noncash

The statement of cash flows classifies items as

operating, investing, and financing.

In a statement of cash flows, the sum of cash inflows and outflows is equal to

the change in the cash balance.

Net cash flows provided by operating activities will be ______ when using the direct method compared to the indirect method.

the same

Cash inflows and outflows involving stockholders and creditors are classified on the statement of cash flows as ___ activities.

financing

Issuing stock to owners is classified as a(n) ___ activity.

financing

Adjustments to net income in calculating operating cash flows include:

Changes in current assets and current liabilities Noncash items Nonoperating items

In order to determine cash flows from financing activities, we need to examine changes to

long-term liability and stockholders' equity accounts

Which of the following describes the acceptable methods that may be used to report cash flows from operating activities on the statement of cash flows?

Indirect method Direct method