A205-Exam 2
Beginning accounts receivable is $20,000, and ending accounts receivable is $15,000. As a result, cash collected from customers is ______ than sales on account
$5,000 greater
Beginning inventory is $20,000, and ending inventory is $15,000. As a result, purchases are ______ than cost of goods sold.
$5,000 less
Amortization expense
+
Cash flow effect with direct method: cash collections from customers
+
If depreciation and amortization increase
+
If loss on sale of long-term asset increases
+
if account payable increases
+
if accounts receivable decreases
+
if accrued expense liabilities
+
if inventory decreases
+
Sales Revenue effect on balance account
+Decrease in Accounts Receivable -Increase in Accounts Receivable
Interest/Dividend Revenue effect on balance account
+Decrease in Interest/Dividends Receivable -Increase in Interest/Dividends Receivable
Cost of goods solds effect on balance account
+increase in inventory -decrease in inventory -increase in accounts payable +decrease in accounts payable
Prepaid/Accrued expenses on balance account
+increase in prepaid expenses -decrease in prepaid expenses -increase in accrued expenses +decrease in accrued expenses
Income tax expense on balance account
+increase in prepaid income taxes -decrease in prepaid income taxes -increase in income tax payable +decrease in income taxes payable
Cash flow effect with direct method: payment of taxes to the government
-
Cash flow effect with direct method: payments of interest to debtholders
-
If accounts receivable increases
-
If gain on sale of long-term asset increases
-
if account payable decreases
-
if accrued expense liabilities decrease
-
if inventory increases
-
if prepaid expense increases
-
The complete list of items needed to prepare a statement of cash flows includes
-comparative balance sheets -complete income statement -additional data concerning accounts in investing and financing activities
When calculating net cash flow provided by operating activities using the indirect method, a decrease in Accrued Liabilities, such as Wages and Salaries Payable, is subtracted from net income to include the effects of transactions that _______ cash, but ______ net income
-decrease -do not affect
Which of the following items would be added to Net Income in the operating activities section of the statement of cash flows prepared using the indirect method? -gain on sale of investing asset -decreases in operating assets -depreciation and amortization expense -decreases in operating liabilities -loss of sale of investing asset
-decreases in operating assets -loss of sale of investing asset -depreciation and amortization expense
In preparing the operating activities section of a statement of cash flows using the indirect method, net income should be adjusted for -gain from sale of asset -depreciation expense -loss from sale of asset -issuance of bonds for cash -payment of a noncurrent liability
-gain from sale of asset -depreciation expense -loss from sale of asset
A $5,000 decrease in prepaid expenses means that cash payments were _________ (greater/less) than the amount used (expenses) and thus the decrease is _____ (added to/subtracted from) net income in the operating activities section of the statement of cash flows.
-less -added to
Which of the following balance sheet items relate to investing activities? -property, plant, and equipment -inventory -short-term investments -retained earnings
-property, plant, and equipment -inventory -short-term investments -retained earnings
Why is depreciation expense added to net income when preparing the statement of cash flows?
Depreciation Expense originally reduced net income, but the expense does not involve paying cash
__________ the change when an operating asset decreases or an operating liability increases
Add
What is the operating cash flow for sales revenue?
Collections from customers
What is the operating cash flow for interest/dividend revenue?
Collections of interest/dividends on investments
Cash flow effect with direct method: increase in inventories
NA
Cash flow effect with direct method: payments of dividends to stockholders
NA
Cash flow effect with direct method: purchase of plant and equipment for cash
NA
If depreciation and amortization decreases
NA
If gain on sale of long-term asset decreases
NA
If loss on sale of long-term asset decreases
NA
Proceeds from an issuance of notes payable
NA
What is the operating cash flow for prepaid/accrued expenses?
Payments to suppliers of services (rent, utilities, wages, interest)
_________ the change when an operating asset increases or an operating liability decreases
Subtract
What type of firms do investors avoid
a firm with rising net income but falling cash flow from operations
Quality of income ratio
cash flow from operating activities / net income
What is the free cash flow equation
cash flow from operating activities-dividends-capital expenditures
Capital Acquisitions ratio
cash flow from operating activities/cash paid for property, plant, and equipment
When using the indirect method, adding a decrease in Prepaid Insurance to net income, eliminates the effect of recording Insurance Expense that ________
decreased net income, but did not impact cash
Cash repayments of principal are cash flows from ______
financing activities
Dividend payments are cash flows from ___________
financing activities
Reported as Investing or Financing and cash inflow or outflow: proceeds from issuance of note payable (to bank)
financing, +
Reported as Investing or Financing and cash inflow or outflow: cash dividends paid
financing, -
Reported as Investing or Financing and cash inflow or outflow: proceeds from issuance of common stock
financing,+
A $5,000 decrease in accounts payable means that cash payments were ______ (greater/less) than purchases on account and thus the decrease is ____ (added to/subtracted from) net income in the operating activities section of the statement of cash flows.
greater; subtracted from
Fraudulent financial reporting often involves aggressive revenue recognition and delayed expense recognition resulting in _______ net income relative to operating cash flow.
higher
Changes in property, plant and equipment on the balance sheet relate to ______ activities on the statement of cash flows
investing
Reported as Investing or Financing and cash inflow or outflow: proceeds from sale of property, plant, and equipment
investing, +
Reported as Investing or Financing and cash inflow or outflow: Purchases of short-term investments
investing, -
What does a high capital acquisitions ratio indicate?
less need for outside financing for current and future expansion.
If debt or stock is issued for other than cash it is__________
not included in cash flows
Interest payments are cash flow from ____________
operating activities
Section that focuses on the firm's ability to generate cash internally through operations and its management of current assets and current liabilites
operating activities section
What is the operating cash flow for cost of goods sold?
payments to suppliers of inventory
An increase in accounts receivable on a comparative balance sheet indicates that more ______ during the accounting period
sales revenue was earned than cash was collected
When using the indirect method, subtracting an increase in Accounts Receivable from net income eliminates the effect of recording credit sales
that increased net income, but did not impact cash
