Chapter 12 GLOSSARY REVIEW

Question 1

Direct Method

Answer 1

A method of determining net cash provided by operating activities by adjusting each item in the income statement from the accrual basis to the cash basis. The direct method shows operating cash receipts and payments.

Question 2

Financing Activities

Answer 2

Cash flow activities that include (a) obtaining cash from issuing debt and repaying the amounts borrowed and (b) obtaining cash from stockholders, repurchasing shares, and paying dividends.

Question 3

Free Cash Flow

Answer 3

Net cash provided by operating activities after adjusting for capital expenditures and cash dividends paid.

Question 4

Indirect Method

Answer 4

A method of preparing a statement of cash flows in which net income is adjusted for items that do not affect cash, to determine net cash provided by operating activities.

Question 5

Investing Activities

Answer 5

Cash flow activities that include (a) transactions that involve the purchase or disposal of investments and property, plant, and equipment using cash, and (b) lending money and collecting the loans.

Question 6

Operating Activities

Answer 6

Cash flow activities that include the cash effects of transactions that create revenues and expenses and thus enter into the determination of net income.

Question 7

Product Life Cycle

Answer 7

A series of phases in a product’s sales and cash flows over time. These phases, in order of occurrence, are introductory, growth, maturity, and decline.

Question 8

Statement of Cash Flows

Answer 8

A basic financial statement that provides information about the cash receipts and cash payments of an entity during a period, classified as operating, investing, and financing activities, in a format that reconciles the beginning and ending cash balances.