CH 11

Question 1

Is NI or cash flow an indicator of growth in a company?

Answer 1

More so Ni, but both are equally important indicators for a successful business.

Question 2

What is cash flow statement?

Answer 2

A summary of cash inflows and cash outflows during the reporting period sorted by operating, investing, and financial activities.

Question 3

Is Dividends recorded in financial activities in cash flow statement?

Answer 3

No, dividends receipts are reported in operation activities while dividend payments are reported in financial activities.

Question 4

What does income statement, changes in other current assets, and changes in current liabilities effect what activities on statement of cash flows?

Answer 4

Operation activities

Question 5

What changes in cash flow statement effect what activity?

Answer 5

Investing activities

Question 6

Changes in long term liabilities, common stock, retained earning( dividends paid) effect in cash flow statement’s activity?

Answer 6

Financial activity

Question 7

Does net cash flow change and equal change in cash?

Answer 7

yes

Question 8

Define non-cash activities?

Answer 8

Significant investing and financial activities that do not affect cash

Question 9

What are examples of noncash activities for investing and financial activities?

Answer 9

Purchase of long term assets by issuing debt

Purchase of long term assets by issuing stock

Conversion of bonds payable into common stock

Exchange of long term assets

Question 10

Are indirect and direct methods of operating activities are identical for both methods

Answer 10

yes

Question 11

Define indirect method

Answer 11

Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows

Question 12

Define direct method.

Answer 12

Adjusts the items on the income statement to directly show the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.

Question 13

What is the first step of preparing a cash flow statement

Answer 13

Calculate net cash flows from operating activities, using information from the income statement and changes in current assets (other than cash) and current liabilities from the balance sheet

Question 14

What is the second step of preparing a cash flow statement?

Answer 14

Determine the net cash flows from investing activities by analyzing changes in long term asset accounts from the balance sheet

Question 15

What is the third step of preparing a cash flow statement?

Answer 15

Determine the net cash flows from financing activities, by analyzing changes in long term liabilities and stockholders’ equity accounts from the balance sheet.

Question 16

What is the fourth step of preparing a cash flows statement?

Answer 16

Combine the operating, investing, and financing activities, and make sure the total change from these three activities agree with the net increase (decrease) in cash shown at the bottom of the statement of cash flows.

Question 17

Cash flows statement converts accrual flows into cash flows from net income?

Answer 17

yes

Question 18

What are income statements non-cash items?

Answer 18

Revenues and expenses that don’t affect cash

Revenues and expenses that do affect cash not by adjustments in current assets or liabilities that are revenue and expenses

Question 19

Does indirect method reconciles and redirects net income to operating cash flows?

Answer 19

No, it does not redirect flows into other activities. It only reconciles cash flows from net income.

Question 20

Does depreciation expense increase net come?

Answer 20

No, it reduces net income.

Question 21

How do you record loss on sale of land?

Answer 21

Cash (DR)
Loss (DR)
Land (CR)
(record loss on sale of land)

Question 22

Define journal of loss

Answer 22

The difference between cash received in the sale of land (reported as an investing activity) and the cost of the land.

Question 23

Is loss an expense then it regains amount back?

Answer 23

Yes because loss is recorded as a long term asset

Question 24

How do you record an increase in accounts receivable?

Answer 24

Cash( to balance) [DR]
A/R( DR)
Revenues ( from income statement)[CR]
(record increase in accounts receivable)

Question 25

What is return on assets?

Answer 25

Net income divided by average total assets

Question 26

What is cash return on assets?

Answer 26

Cash return on assets = operating cash flow / average total assets

Question 27

Define Cash flow to sales

Answer 27

Net cash flows from operating activities divided by sales revenue; measure the operating cash flow generated per dollar of sales.

Question 28

Define asset turnover

Answer 28

Sales revenue divided by average total assets; measure the sales revenue generated per dollar of assets.