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