Chapter 4 - Cash Flow Statement

Question 1

Cash Flow Statement

Answer 1

Explains how a firm obtains and uses cash.

Question 2

Categories of Cash Flow Statement

Answer 2

Operating
Investing
Financing

Question 3

Operating Activities

Answer 3

Net Income.
Changes in current assets.
Changes in noncurrent assets that affect net income such as depreciation.
Changes in current liabilities except for debts to lenders and dividends payable.
Changes in noncurrent assets that affect net income.

Question 4

Investing Activities

Answer 4

Changes in noncurrent assets that are not included in net income

Question 5

Financing Activities

Answer 5

Changes in current liabilities that are debts to lenders rather that obligations to
Suppliers, employees, or the government.
Changes in noncurrent liabilities that are not included in net income.
Changes in capital stock accounts.
Dividends.

Question 6

Issues when preparing the CFS

Answer 6

Whether or not amounts on the CFS should be presented as margin or net.
Whether operating activities should be presented using direct or indirect approach.

Question 7

Cash Flows: Gross or Net?

Answer 7

Both.

Gross amount of reporting does not pertain to operating activities.

Question 8

Operating Activities: Direct or Indirect?

Answer 8

FASB prefers Direct, but 99% do indirect, because it shows the reasons for any differences between net income and the net cash provided by operating activities.