Chapter 23 - Statement of Cash Flows (True False)

Income from an investment in common stock using the equity method is added to net income in computing net cash provided from operating activities

F

The direct method, also called the reconciliation method, reports cash receipts and cash disbursements from operating activities.

F

The first step in the preparation of the statement of cash flows is to determine the net cash flow from operating activities

F

The primary purpose of the statement of cash flows is to provide cash-basis information about the company's operating, investing, and financing activities

F

Under the accrual basis of accounting, net income is usually the same as net cash flow from operating activities

F

When numerous adjustments are necessary, companies often use a cash flow worksheet instead of preparing a statement of cash flows

F

When prepaid expenses decrease during a period, expenses on the accrual-basis are lower than they are on a cash-basis.

F

A company can convert net income to net cash flow from operating activities through either the direct method or the indirect method.

T

Cash receipts from customers are computed by adding a decrease in accounts receivable to revenue from sales.

T

Companies classify some cash flows relating to investing or financing activities as operating activities

T

Companies report the cash flows from purchases and sales of trading securities as cash flows from operating activities

T

Noncash investing and financing activities are disclosed either in a separate schedule or in a separate note to the financial statements

T

The indirect method adjusts net income for items that affected reported net income but did not affect cash

T

The issuance of stock dividends is entered on the cash flow worksheet, but is not reported in the statement of cash flows

T

The net increase (decrease) in cash reported on the statement of cash flows should reconcile the beginning and ending cash balances reported in the comparative balance sheets.

T

The statement of cash flows provides information to help investors and creditors assess the cash and noncash investing and financing transactions during the period.

T

When accounts receivable decrease during a period, cash-basis revenues are higher than revenues reported on an accrual basis

T

A company should add back bond premium amortization to net income to arrive at net cash flow from operating activities

F

Cash payments for operating expenses are computed by subtracting an increase in prepaid expenses and a decrease in accrued expenses payable from operating expenses

F

The FASB encourages the use of the indirect method over the direct method

F