Cash flow statement ch 16

Question 1

Which are the two methods to calculate cash generated from operating activities? And which one of those is preferred by the accounting standrad?

Answer 1

Direct and indirect method. Direct method is preferred by the standard.

Question 2

What are the three items under operating activities when using the direct method?

Answer 2

+Cash received from customers.

-Cash paid to suppliers of goods and services.

-Cash paid to employees.

Question 3

What four items are listed under operating activities on the SCF when using the indirect method?

Answer 3

Net profit before tax

Adjust for non-cash income/expenses

Adjust for non operating inflows/outflows included in the profit figure.

Adjust for changes in working capital.

Question 4

If inventory increased, what is the effect on cash?

Answer 4

Decreased

Question 5

If inventory decreased, what is the effect on cash?

Answer 5

Increased

Question 6

Account receivable increased, what’s the effect on cash?

Answer 6

decreased

Question 7

Account receivable decreased, what’s the effect on cash?

Answer 7

increased

Question 8

Account payable increased, what’s the effect on cash?

Answer 8

increased

Question 9

Accounts payable decreased, what’s the effect on cash?

Answer 9

decreased