Statement of Cash Flow\

Question 1

What are the different classifications of cash flow?

Answer 1

1. Operating activities
2. Investing activities
3. Financing activities

Question 2

What is the purpose of a cash flow statement?

Answer 2

To understand:

1. How a company obtain its cash
2. Where does a company spend its cash
3. What explains the change in the cash balance

Question 3

When paying dividends and interest (expense) which classification of activity is it under?

Answer 3

Operating activities

Financing activities

Question 4

When receiving dividends and interest which classification of activity is it under?

Answer 4

Operating activities

Investing activities

Question 5

Apart from the 3 main activities present in a cash flow statement what are the other factors included in a statement of cash flow?

Answer 5

Net increase (decrease) in cash
Cash balance at prior period-end
Cash balance at current period-end

Question 6

Steps to prepare the cash flow are

Answer 6

1. Compute net increase or decrease in cash
2. Compute net cash from operating activities
3. Compute net cash from investing activities
4. Compute net cash from financing activities
5. Prove and report beginning and end cash balances

Question 7

What is the direct method of reporting?

Answer 7

Companies adjust each item in the income statement from the accrual basis to the cash-basis

1. T-Account
2. Formula
3. As-if method

Question 8

How to report directly using T-account?

Answer 8

Total cash paid + Prior balance - Current balance

Question 9

How to report directly using Formula?

Answer 9

Cash receipts from customers = sales revenue + decrease AR/ - increase AR