Chapter 7 - The statement of cash flow

Question 1

what are the pour pose of the statement of cash flow?

Answer 1

1. Assess the organizations’s ability to generate positive future net cash flows
2. Assess the firm’s ability to meet it’s obligations
3. Assess the difference between the enterprise’s net income and cash receipts
4. Assess the effect of both cash and non cash investing and financing during the accounting period

Question 2

what are the classifications of cash flows?

Answer 2

Operating activities
Investing activities
Financing activities

Question 3

what is operating activities?

Answer 3

Transactions related to revenues and expenses

Question 4

what is investing activities?

Answer 4

Transactions from the acquisition and disposal of all concurrent assets (ie property, equipment and investments)

Question 5

what is financing activities?

Answer 5

Transactions relate to issuance and retirement of debt and the issuance and re-purchase of capital stock

Question 6

what are the two methods of converting accrual income statement to statement of cash flow?

Answer 6

Direct Method

Indirect Method

Question 7

what is direct method?

Answer 7

shows cash receipts from sales and cash disbursements for expenses

Question 8

what is indirect method?

Answer 8

determining net cash flows from operations starts with net income

Question 9

what is the order of preparing statement of cash flow?

Answer 9

1. Net Cash Flows from Operating Activities
2. Net Cash Flows from Investing Activities
3. Net Cash Flows from Financing Activities
4. Presenting Cash Flows by Activity