Statement of Cash Flows

Question 1

What items are included in operating activities on the Statement of Cash Flows?

Answer 1

Cash received from Customers- Interest & Dividends- Trading Securities

Cash paid to Vendors- Suppliers- Interest- Taxes- Trading Securities

Question 2

What items are included in investing activities on a Statement of Cash Flows?

Answer 2

Cash received: Sale of PP&E- Sale of Investments- Loan Principle

Cash paid: Loans- Acquisitions- AFS or HTM Securities- Taxes- Trading Securities

Question 3

What items are included in Financing Activities in a Statement of Cash Flows?

Answer 3

Cash received: Issuance of Stock- Issuance of Debt

Cash paid: Dividends

Question 4

What is the direct method for a Statement of Cash Flows?

Answer 4

Starts with Income from Continuing Operations

Adjusts for changes in accounts like A/R- A/P- Inventory and non-cash revenues- expenses- gains- losses

If used- the Indirect Method must also be shown

Question 5

What is the Indirect Method for a Statement of Cash Flows?

Answer 5

Starts with Net Income

Adjusts for changes in accounts like A/R- A/P- Inventory and non-cash revenues- expenses- gains- losses

Question 6

ASC 230 requires that ________________ (L)

Answer 6

all business enterprises include a statement of cash flows in a complete set of financial statements.

Question 7

Cash Equivalents (L)

Answer 7

Temporarily idle cash as part of an enterprise’s cash management activities, purchasing and selling short-term, highly liquid investments such as treasury bills, commercial paper and money market funds.

Question 8

Generally, cash receipts and payments must be presented as ______________rather than as net changes in related balance sheet amounts. (L)

Answer 8

gross amounts

Question 9

The statement shall use descriptive terms such as _______ or _______________ rather than ambiguous terms such as funds. (L)

Answer 9

Cash, Cash and Cash Equivalents

Question 10

The total amounts of cash and cash equivalents at the beginning and end of the period shown in the statement of cash flows shall be the ___________ as similarly titled line items or subtotals shown on the balance sheet as of those dates. (L)

Answer 10

same amounts

Question 11

A reconciliation of net income to net cash flow from operating activities shall be provided. If the indirect method is used the reconciliation will be provided in? (L)

Answer 11

The reconciliation may be either reported within the statement of cash flows or provided in a separate schedule, with the statement of cash flows reporting only the net cash flow from operating activities.

Question 12

Activities related to the acquisition and disposal of assets other than those directly related to the enterprise’s operations (such as trade accounts and notes receivable, inventory, prepaid expenses). (L)

Answer 12

Investing Activities

Question 13

Cash flow per share shall _____ be reported in financial statements. (L)

Answer 13

not

Question 14

Transactions which result in no cash inflow or outflow during the period; however, they affect the assets, liabilities and/or equity of the enterprise. (L)

Answer 14

Noncash Investing And Financing Activities

Question 15

Two Disadvantages of the Direct Method of Reporting Cash Flows: (L)

Answer 15

1) The direct method does not link the net income reported on the income statement to the cash flow from operating activities.
2) The direct method does not provide information about intervals of lead and lags between cash flows and income by showing how the changes in current assets and current liabilities, relating to operations, affect operating cash flows.

Question 16

The direct method of reporting operating cash flow reports ____________________ (L)

Answer 16

major classes of gross cash receipts and gross cash payments and the resulting net cash flow from operating activities.

Question 17

The principal advantage of the Indirect method of reporting cash flows: (L)

Answer 17

Focuses on the differences between net income and net cash flow from operating activities, linking the income statement to the statement of cash flows.

Question 18

Ratio Analysis (L)

Answer 18

Develops comparisons and measures relationships between two amounts from a single statement or from two different statements.

Question 19

Financial statements for two or more years and statements of percentages indicating the relative change in items on the statements over time facilitate the identification, comparison and evaluation of trends. (L)

Answer 19

Comparative Financial Statements and Horizontal Analysis

Question 20

Quick Ratio (Acid Test Ratio) (L)

Answer 20

C+M/S+Rec/ CL CL
or CA – Inv.

Degree of immediate liquidity

Question 21

Inventory Turnover (L)

Answer 21

Cost of Goods Sold/
Av. Inv.

Liquidity of inventory and
inventory efficiency

Question 22

The major difference between IFRS and US GAAP on the cash flow statement is: (L)

Answer 22

The location on the cash flow statement of interest and dividends. Interest and dividends received may be reported as either operating or investing activities.

Question 23

Rate of Return on Investment (L)

Answer 23

R.O.I. = Asset Turnover / Profit Margin

Question 24

Under IFRS, interest and dividends paid may be reported as either _______ or _______ activities.. (L)

Answer 24

operating, financing

Question 25

Requirements for Cash Equivalents (2) (L)

Answer 25

1) Readily converted to known amounts of cash.

2) So near maturity that they present insignificant risk of change in value because of changes in interest rates.

Question 26

The primary purpose of the Statement of Cash Flows is? (L)

Answer 26

To provide external users with relevant information concerning an enterprise’s gross cash receipts and payments during a period.

Question 27

The statement shall group and classify cash receipts and cash payments as resulting from____________________________. (L)

Answer 27

operating, investing or financing activities of the enterprise

Question 28

A reconciliation of net income to net cash flow from operating activities shall be provided. If the direct method is used the reconciliation will be provided in ______________________ (L)

Answer 28

in a separate schedule

Question 29

The statement shall report _________________ by operating, investing and financing activities and the ____________ of those flows on cash and cash equivalents during the period in a manner that reconciles beginning and ending cash and cash equivalents. (L)

Answer 29

Net Cash Provided or used, Net effect

Question 30

Noncash investing and financing activities that affect recognized assets or liabilities shall be reported in? (L)

Answer 30

Related disclosures (either narrative or summarized in a schedule).

Question 31

All transactions and other events that are not defined as investing or financing activities. Operating activities generally involve producing and delivering goods and/or providing services to customers. (L)

Answer 31

Operating Activities

Question 32

ASC 230 __________ enterprises to use the direct method in reporting cash flows from operating activities; however, it does not require its use. (L)

Answer 32

encourages

Question 33

Transactions related to obtaining resources from owners and providing them with a return on, and return of their investment; borrowing money and repaying or otherwise settling the obligation; and obtaining and paying for other resources obtained from creditors on long-term credit. (L)

Answer 33

Financing Activities

Question 34

Principal advantage of the direct method of reporting cash flows is _______________________ (L)

Answer 34

that it shows gross operating cash receipts and payments.

Question 35

Two Disadvantages of the Indirect Method of reporting Cash Flows (L)

Answer 35

1) The indirect method does not show gross operating cash receipts and payments.
2) The indirect method is inconsistent with the statement objective of providing information concerning gross cash receipts and payments during a period.

Question 36

Indirect Method of Reporting Cash Flows (L)

Answer 36

The indirect method reports the same amount for net cash flow from operating activities; however, it does not report major classes of gross cash receipts and payments from operating activities.

Question 37

Statements which express each item on a particular financial statement as a percentage of a base amount emphasize the relationship among the items included, the relative importance of amounts included, and the significance of changes in items from one period to the next. (L)

Answer 37

Common Size Statements

Question 38

Receivables Turnover (L)

Answer 38

Net Credit Sales/Av. Rec. (net)

Liquidity of receivables–
efficiency and collection period

Question 39

Current Ratio (L)

Answer 39

Current Assets/Current Liabilities

Primary measure liquidity–
able to meet current obligations

Question 40

Debt-Equity (L)

Answer 40

Debt/Equity

Relative debt funds — financial structure

Question 41

The DuPont system of analysis (L)

Answer 41

Highlights and examines in detail the elements comprising the rate of return on investment, emphasizing the effect that various elements of the financial statements have on the Rate of Return on Investment ratio.

Question 42

True or False? Under IFRS Cash Flow per share can be disclosed? (L)

Answer 42

True. The cash flow effect of a discontinued operation must be disclosed separately IFRS also permits the disclosure of a cash flow per share. This is not allowed under US GAAP.

Question 43

Under IFRS, interest and dividends received may be reported as either _______ or _______ activities. (L)

Answer 43

operating, investing