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