Chapter 11

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

A review of Munchen Corporation's financial statements reveals the following information: cost of goods sold: $100,000; decrease in inventory: $5,000; increase in accounts payable: $10,000. Cash paid to suppliers was:

$100,000-$5,000-$10,000= $85,000

A review of Elisa Company's financial statements reveals the following information: cost of goods sold: $200,000; increase in inventory: $10,000; increase in accounts payable: $20,000. Cash paid to suppliers was:

$200,000+$10,000-$20,000=$190,000

Roberts Company's operating expenses (excluding depreciation expense) were $50,000 and its balance in prepaid insurance increased by $2,000. Cash paid for operating expenses was:

$50,000+$2,000=$52,000

Adam Company's operating expenses (excluding depreciation expense) were $80,000 and its balance in prepaid insurance decreased by $5,000. Cash paid for operating expenses was:

$80,000-$5,000= $75,000

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 -Accounts payable -Inventory

Adjustments to net income in calculating operating cash flows include:

-Changes in current assets and current liabilities -Nonoperating items -Noncash items

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 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

If interest payable increases, which of the following is true?

Interest paid is lower than the interest expense on the income statement.

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?

Sales on account + cash sales + the change in accounts receivable = cash collected for the period. $200,000 + 50,000 - 10,000 = $240,000

Which of the following statements is correct concerning a decrease in accounts payable?

Since the cash payments were more than the credit purchases, the decrease must be added to purchases to calculate cash payments to suppliers

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.

Nonoperating items

These items include gains and losses on the sale of long-term assets that do not affect operating cash flows. Common examples are gains and losses on the sale of land, buildings, and equipment.

Grant's income statement reveals a loss from the sale of land. In preparing the operating activities section of the statement of cash flows using the indirect format, the loss should be

added to net income

When cash from operating activities is presented using the indirect method, net income must be adjusted for increases and decreases in balance sheet accounts that relate to

amounts presented in the income statement.

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

cash account

cash outflow

cash paid by the company during the period.

operating activities

cash receipts and cash payments for transactions involving revenue and expense activities during the period. -Inflows: Sale of goods or services, collection of interest and dividends -Outflows: purchase of inventory, payment for operating expenses, payment of interest, payment of income taxes.

cash inflow

cash received by the company during the period

One of the purposes of adjusting net income for changes to certain balance sheet accounts is to

convert items included in net income to cash.

Using the indirect method to report cash flows from operating activities, a(n) _______ in the accounts receivable from the prior period is added to net income in the _________ activities section of the statement of cash flows.

decrease; operating

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

A decrease in Income Tax Payable will ______ cash outflows because cash paid for income tax is ______ income tax expense on the income statement.

increase; higher than

An increase in accounts receivable indicates that the company collected _____ cash than the amount of ______.

less; sales revenue

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.

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

not reported on the statement of cash flows.

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

prepaid insurance

statement of cash flows

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

Changes in current assets and current liabilities

represents the noncash portion of some revenues and expenses. They occur when the cash flow for the year does not equal the related amount reported in the income statement. For example, all sales to customers are reported as revenues in the income statement, but only cash collected from customers represents an operating cash inflow. The amount of revenue not collected in cash will equal the increase in accounts.

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

return on assets

noncash items

revenues and expenses that never affect cash. Common examples are depreciation expense and amortization expense.

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.

investing activities

transactions involving the purchase and sale of long-term assets and current investments. -Inflows: sale of investments, sale of long-term assets, collection of notes receivable. -outflows: purchase of investments, purchase of long-term assets, lending with notes receivable.

financing activities

transactions with lenders, such as borrowing money and repaying debt, and with stockholders, such as issuing stock, paying dividends , and purchasing treasury stock. -Inflows: issuance of bonds or notes payable, issuance of stock. -Outflows: repayment of bonds or notes payable, acquisition of treasury stock, payment of dividends.