Statment of Cash Flows

Question 1

What is the cash flow category for collections of principal amounts on loans made to other entities?

Answer 1

The category is Investing.

Question 2

What is the basic purpose of the statement of cash flows?

Answer 2

The basic purpose if to provide information about the cash receipts and cash payments for an entity to help investors, creditors, and others.

Question 3

What is the direct method on the statement of cash flows?

Answer 3

this method presents actual inflows and outflows from cash operations. Must also disclose the indirect method (reconciliation of net income to cash flows from operations) as a supporting schedule.

Question 4

What is the reporting basis of the statement of cash flows?

Answer 4

The reporting basis is cash and cash equivalents.

Question 5

Name the four major sections in the direct method cash flow statement.

Answer 5

• Operating cash flows
• Investing cash flows
• Financing cash flows
• Reconciliation of net income and net operating cash flows

Question 6

List the required categories for the Statement of Cash Flows.

Answer 6

• Net cash inflow or outflow from Operating activities
• Net cash inflow or outflow from Investing activities
• Net cash inflow or outflow from Financing activities
• Effects of foreign currency translation
• Reconciliation of net cash inflows/outflows with the reported change in cash and cash equivalents on the balance sheet
• Non-cash Investing and Financing activities

Question 7

What is reported on the Statement of Cash Flows?

Answer 7

• Information about the cash receipts and cash payments for an entity
• The difference between net income and net operating cash flows
• Information about investing and financing activities which do not involve cash inflows or outflows.

Question 8

Name the two formats permitted for the statement of cash flows.

Answer 8

Direct and indirect.

Question 9

What is the cash flow category for interest paid and received?

Answer 9

The category is Operating Activities.

Question 10

What is the indirect method on the statement of cash flows?

Answer 10

Reconciles net income to cash flows from operating activities.

Question 11

When is a Statement of Cash Flows required?

Answer 11

For all business enterprises that report both financial position (Balance Sheet) and results of operations (Income Statement) for a period.

Question 12

What is the cash flow category for loans made to other entities?

Answer 12

The category is Investing.

Question 13

What are some examples of cash outflows classified as Investing Activities?

Answer 13

• Purchase of long-term assets
• Lending to others
• Investment in debt and equity securities held to maturity and available for sale
• Purchases of productive assets (not inventory)

Question 14

What is the cash flow category for principal payments on short-term and long-term loans from financial institutions made to acquire inventory for resale?

Answer 14

The category is Financing.

Question 15

What is the cash flow category for purchases of trading securities?

Answer 15

The category is Operating.

Question 16

What is the cash flow category for dividends paid?

Answer 16

The category is Financing.

Question 17

What is the cash flow category for purchases of securities available for sale?

Answer 17

The category is Investing.

Question 18

What are some examples of cash inflows classified as Financing Activities?

Answer 18

• Sale of own stock

- Proceeds from borrowing

Question 19

What is the cash flow category for principal payments on short-term and long-term loans from suppliers made to acquire inventory for resale?

Answer 19

The category is Operating.

Question 20

What is the cash flow category for principal payments on short-term and long-term loans (from financial institutions or dealers) made to acquire plant assets?

Answer 20

The category is Financing.

Question 21

What are some examples of cash inflows classified as Investing Activities?

Answer 21

• Sale of long-term assets
• Collection of loan principal
• Disposal of held to maturity and available for sale debt and equity securities
• Sale of productive assets (not inventory)

Question 22

Where is the cash effect on foreign currency translation reported?

Answer 22

Is it reported as a separate part of the reconciliation of the change in cash and cash equivalents during the period.

Question 23

What are some examples of cash outflows classified as Financing Activities?

Answer 23

• Repurchase of own stock
• Paying back lenders (principal only)
• Payment of dividends

Question 24

Where are non-cash investing and financing activities reported?

Answer 24

They are reported on the face of the Statement of Cash Flows as a separate disclosure.

Question 25

Using the indirect method for reporting cash flows from operations, should a decrease in inventory be added to or subtracted from accrual based net income?

Answer 25

A decrease in inventory should be added.

Question 26

What is the purpose of the operating section of the statement of cash flows under the direct method?

Answer 26

The purpose is to show all cash inflows and outflows for operating activities.

Question 27

Using the indirect method for reporting cash flows from operations, should an increase in accounts payable be added to or subtracted from accrual based net income?

Answer 27

An increase in accounts payable should be added.

Question 28

Using the indirect method for reporting cash flows from operations, should a decrease in unearned revenue be added to or subtracted from accrual based net income?

Answer 28

A decrease in unearned revenue should be subtracted.

Question 29

Using the indirect method for reporting cash flows from operations, should an increase in accounts receivable be added to or subtracted from accrual based net income?

Answer 29

An increase in accounts receivable should be subtracted.

Question 30

What is the purpose of the operating section of the statement of cash flows under the indirect method?

Answer 30

The purpose is to adjust accrual net income to net cash flow from operating activities.