Ch.11 prechapter

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

financing

The ratio that is calculated by dividing net income by average total assets is referred to as:

return on assets

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

the change in the cash balance.

The amount of net cash flows from operating activities calculated using the direct method is

the same as under the indirect method.

Cash receipts and cash payments for transactions relating to revenue and expense activities are classified on the statement of cash flows as

operating activities

When the ______ account decreases, it means the company paid less cash for insurance than it recorded as insurance expense.

prepaid insurance

Sales on account are $100,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $15,000. What is the cash collected from customers during the period?

100,000 + ( 20,000 - 15,000 ) = 105,000

Sales on account are $200,000. Cash sales during the period are $50,000. Beginning accounts receivable is $20,000, and ending accounts receivable is $30,000. What is the total cash collected from customers during the period?

200,000 + 50,000 - 10,000 = 240,000

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

Repayments of formal, long-term debt contracts are classified as ______ activities.

financing

When using the direct method to prepare the Statement of Cash Flows, depreciation expense is

not reported on the statement of cash flows.

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

operating

The three classifications on the statement of cash flows are cash flows from (Select all that apply.)

operating activities investing activities financing activities

The statement of cash flows classifies items as

operating, investing, and financing.

Which of the following items are classified as cash outflows from operating activities on the statement of cash flows?

payment on account Payment of salaries purchase of supplies Interest paid on bonds

Changes to current assets and current liabilities require adjustment of net income under the indirect method because

related cash may be higher or lower than the accrued amount included in net income

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

statement of cash flow

List the four steps in preparing a statement of cash flows in the correct order.

1. calculate the net cash flows from operating activities 2. determine the net cash flows from investing activities 3. determine the net cash flows from financing activities 4. combine operating, investing, and financing activities

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

Which of the following statements best describes the reason depreciation expense is added to net income when preparing the statement of cash flows?

Depreciation expense originally reduced net income, but it is a noncash expense.

Which statement regarding the amount of cash from operating activities is correct?

It is identical under the direct and the indirect method

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

Losses on the sale of long-term assets Gains on the sale of long-term assets

Adjustments to net income in calculating operating cash flows include:

Nonoperating items Changes in current assets and current liabilities Noncash items

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.

When using the direct method, why is cash received from customers greater than sales revenue on the income statement when accounts receivable decreases?

There were more collections of accounts receivable than sales on account during the year.

Which of the following accounts results in adjustments to net income under the indirect method of preparing the statement of cash flows if their balances change during the year?

accounts receivable Inventory Accounts payable

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

amortization expense depreciation expense

The direct method presents a summary of all operating transactions that result in either a debit or credit to the ___________ account.

cash

An increase in accounts receivable will result in a(n) ______ in cash from sales revenue when using the direct method to determine cash flows from operations.

decrease

Cash from operating activities differs between the direct and indirect method with respect to the:

detail and presentation only

The _______ method prepares the operating activities section of the statement of cash flows by restating each revenue and expense from the accrual basis to the cash basis. It shows the cash collected from customers and the cash paid for operating expenses.

direct

When using the ________ method for determining cash flows from operations, noncash expenses are omitted from the Statement of Cash Flows.

direct

Which method of preparing the operating activities section of the statement of cash flows consists of a summary of all operating transactions that result in either a debit or a credit to cash?

direct

A decrease in accounts receivable will result in a(n) _______________ in cash from sales revenue when using the direct method to determine cash flows from operations.

increase

The statement of cash flows provides summary information about cash _________ and cash _________ during the year.

inflows outflows

Cash flows from ____________ activities are both outflows and inflows of cash related to the acquisition and disposal of long-term assets.

investing

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

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

long-term liability and stockholders' equity accounts

When prepaid accounts increase, it indicates the company has paid ______ cash than it recorded as operating expenses.

more

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

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

When accounts receivable decrease

net sales are less than cash receipts from customers.

Depreciation expense is added back to net income when preparing the cash flow from operating activities section because depreciation represents a(n) ______ reduction to net income.

noncash

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

nonoperating