Chapter 11: Statement of Cash Flows

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

amortization expense depreciation expense

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

Issuing stock to owners is classified as a(n) -activity.

financing

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

The purchase and sale of long-term assets and current investments are classified as

investing activities.

The starting point for preparing the operating activities section using the indirect method is:

net income

The return on assets is calculated by dividing ______ by ______.

net income; average total assets

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

the same as under the indirect method.

Which of the following sections will be identical in every detail under the direct and indirect methods.

Cash flows from investing activities Cash flows from financing activities

When accounts receivable decrease

net sales are less than cash receipts from customers.

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

Interest paid on bonds payment on account payable purchase of supplies

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

It is identical under the direct and the indirect method

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

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.

Blank 1: net Blank 2: income

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

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

Operating

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.

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

not reported on the statement of cash flows.

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

more

Depreciation expense and amortization expense represent - items requiring adjustments to net income under the indirect method.

noncash

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

Adjustments to net income in calculating operating cash flows include:

Changes in current assets and current liabilities Nonoperating items Noncash items

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

Collection from customers Interest received on notes receivable

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

Collection of interest Collection from customers

True or false: When presenting the operating activities section of the statement of cash flows, the direct method starts with net income and adjusts it by eliminating the effects of transactions that do not involve cash. The indirect method reports the total cash inflow or cash outflow from each main type of transaction.

False

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

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 represents the first step in preparing a statement of cash flows in the correct order?

calculate the net cash flows from operating activities

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

financing

Cash inflows and outflows involving stockholders and creditors are classified on the statement of cash flows as - activities.

financing

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

financing activities. operating activities. investing activities.

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

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

long-term liability and stockholders' equity accounts

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

nonoperating

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

operating activities

The statement of cash flows classifies items as

operating, investing, financing

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

payment of salaries payment on account

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

prepaid insurance

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

inflows outflows

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?

Inventory Accounts receivable Accounts payable

When using the indirect method to prepare the operating activities section of the statement of cash flows, the first amount listed is- - .

Blank 1: net Blank 2: income

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