ACCT11
Direct Method
Adjusts the items on the income statement to directly show the cash inflows and outflows from operations, such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.
The indirect and direct methods:
Are two allowable methods to present operating activities in the statement of cash flows.
We can separate cash return on assets into:
Cash flow to sales and asset turnover.
Which of the following items do we report in the statement of cash flows using the direct method?
Cash paid to suppliers.
We can identify operating activities from income statement information and changes in:
Current asset and current liability accounts
Investing Activities
Includes cash transactions involving the purchase and sale of long term assets and current investments.
Asset Turnover
Net Sales DIVIDED by Average Total Assets
Cash Return on Assets
Net cash flows from operating activities DIVIDED by average total assets.
Cash Flow to Sales
Net cash flows from operating activities DIVIDED by sales revenue
Which of the following is an example of a cash outflow from a financing activity?
Payment of cash dividends
Which of the following is an example of a cash inflow from an investing activity?
Receipt of cash from the sale of equipment
Noncash Activities
Significant investing and financing activities that do not affect cash.
Purchasing land by issuing common stock is an example of:
a noncash activity
Indirect Method
begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.
Statement of Cash Flows
financial statement thsat measures activities involving cash receipts and cash payments over a period of time.
The issuance of bonds payable is classified in the statement of cash flows as a(n):
financing
The issuance of common stock is classified in the statement of cash flows as a(n):
financing
Operating Activities
includes cash receipts and cash payments for transactions relating to revenue and expense activities.
Financing Activities
includes cash transactions resulting from the external financing of a business.
The purchase of a long-term asset is classified in the statement of cash flows as a(n):
investing activity