11B
the following provides an indication of a higher quality of net income
Operating cash flows that are highly correlated with net income
Using the indirect method to report cash flows from operating activities, decrease in the inventory account will be ______ net income to arrive at net cash flow provided by operating activities.
added back to Reason: A decrease in inventory indicates that inventory that had been purchased during a previous period did not result in a decrease to cash.
When preparing the statement of cash flows using the indirect method, depreciation expense is ______ ______ net income.
added to
Repayments of formal, long-term debt contracts are classified as ______ activities.
financing
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. loss from sale of asset. depreciation expense.
A decrease in prepaid insurance is added to net income because
insurance expense decreased net income; however, cash was not paid. The prepaid insurance account was decreased rather than cash.
Cash flows from ____ activities are both outflows and inflows of cash related to the acquisition and disposal of long-term assets.
investing
By analyzing changes in long-term asset accounts, we can derive cash flows from
investing activities
An increase in accounts receivable indicates that the company collected ______ cash than the amount of ______.
less; sales revenue
the items that would be added to net income in order to prepare the operating activities section of a statement of cash flows - indirect method
loss on sale of land depreciation expense decrease in current asset
Diamond Company's land account decreased by 10 million. Cash received from sale of land
may be higher or lower than $10 million.
Gains and losses on the sale of long-term assets represent common ______ items needing adjustment under the indirect method.
non operating
Depreciation expense and amortization expense represent _____ requiring adjustments to net income under the indirect method.
noncash
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 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
Accounts receivable Inventory Accounts payable
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
the following statements best describes the reason depreciation expense is added to net income when preparing the statement of cash flows
Depreciation expense originally reduced net income, but it is a noncash expense.
the following are nonoperating items that require adjustments under the indirect method
Gains on the sale of long-term assets Losses on the sale of long-term assets
The balance of retained earnings:
decreases with dividends declared increases with net income
the items that would be subtracted from net income in order to prepare the operating activities section of a statement of cash flows - indirect method.
gain on sale of land decrease in current liability
The starting point for preparing the operating activities section using the indirect method is:
net income
An increase in prepaid insurance is subtracted from net income because
the company paid additional premiums this period in excess of the insurance expense recorded on the income statement.
Under the indirect method of preparing the statement of cash flows, depreciation expense is added back to net income because it
was subtracted in deriving net income. did not require an outflow of cash.
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
Combining cash from operating, investing, and financing activities should yield a number that is identical to the
change in cash balance during the year
Using the indirect method to report cash flows from operating activities, a(n) ___ (increase/decrease) in the accounts receivable from the prior period is added to net income in the ____ activities section of the statement of cash flows.
decrease; operating
The two acceptable methods for U.S. GAAP for reporting cash flows from operating activities are the ___ method and the __ method.
direct; indirect
items that would be subtracted from net income in order to prepare the operating activities section of a statement of cash flows - indirect method
gain on sale of land decrease in current liability
The ____ method of reporting cash flows from operating activities begins with net income.
indirect
One of the purposes of adjusting net income for changes to certain balance sheet accounts is to
convert items included in net income to cash.
Using the ____ method of reporting cash flows from operating activities, we show cash received from customers and cash paid to employees.
direct
When using the indirect method to prepare the operating activities section of the statement of cash flows, the first amount listed is
net income
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
the following methods for reporting cash flows from operating activities begins with net income and works backward to calculate net cash flow from operating activities
Indirect method
Adjustments to net income in calculating operating cash flows include:
Noncash items Nonoperating items Changes in current assets and current liabilities
True or false: If a company chooses to prepare the operating section of the statement of cash flows using the direct method, it must also report using the indirect method.
True Reason: The indirect method of presenting the operating section is a required disclosure when the direct method is used.
When reporting cash flows from operating activities using the indirect method, an increase in accounts payable is ______ net income because payments to suppliers are ______ than new purchases.
added to; less
the following are common noncash items requiring adjustment to net income under the indirect method
amortization expense depreciation expense
When cash from operating activities is presented using the indirect method, net income must be adjusted for increases and decreases in balance sheet accounts that relate to
amounts presented in the income statement.
The direct method for preparing the statement of cash flows reports
cash received and cash paid from operating activities.
The direct method for reporting cash flows from operating activities reports cash inflows and outflows from operations such as:
cash received from customers payments for inventory
the following represents the final step in preparing a statement of cash flows in the correct order
combine operating, investing, and financing activities
When cash flows from operating activities are reported using the indirect method, a(n) ______ in accounts payable will be subtracted from net income.
decrease
When the indirect method is used to report cash flows from operating activities, a decrease in accrued liabilities, such as wages payable, is subtracted from net income to include the effects of transactions that ______ cash, but ______ net income.
decrease; do not affect
The primary purpose of the statement of cash flows is to report activities that increased or decreased cash during the year and to group those activities based on
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.
Wiese Company presents its statement of cash flows using the direct method. Wiese must also prepare the operating section using the indirect method and report it:
either along with the direct method on the face of the statement or in the financial statement notes
Western Inc.'s income statement showed net income of $60,000 and depreciation expense of $10,000. Accounts receivable decreased $3,000, Inventory increased $4,000, Supplies increased $1,000, and Accounts payable increased $3,000. Western's net cash flows from operating activities was ______.
$71,000 Reason: Net cash flow from operating activities = $60,000 + 10,000 + 3,000 - 4,000 - 1,000 + 3,000
Grant's income statement reveals a loss from the sale of land. In preparing the operating activities section of the statement of cash flows using the indirect format, the loss should be
added to net income.
An _____ in accrued liabilities, such as interest payable, will be added to net income when determining net cash flow from operating activities using the indirect method.
increase
Depreciation expense is added back to net income when preparing the cash flow from operating activities section because depreciation represents a(n) ______ reduction to net income.
noncash
The basic purpose of the statement of cash flows is to
report the activities that changed the cash balance during the year
Using the indirect method to report cash flows from operating activities, an increase in the inventory account will be ______ net income to arrive at net cash flow provided by operating activities.
subtracted from
The two types of adjustments to net income for the indirect method are adjustments for
changes in operating assets and liabilities during the period that affected cash and were not in net income. components of net income that do not affect cash.
the items that would be added to net income in order to prepare the operating activities section of a statement of cash flows - indirect method.
depreciation expense decrease in current asset loss on sale of land
During the current period, Kunze Corp. disposed of old equipment for $2,000, purchased new equipment for $20,000, collected an accounts receivable balance of $2,500, and purchased an investment for $3,000. Net cash from investing activities is
$21,000 net outflow. Reason: 2,000 - 20,000 - 3,000
the following would result in a cash outflow from investing activities
Purchase of a machine for cash.