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1. A statement of cash flows indicates the sources and uses of a firm’s cash during a period.
a. True
b. False
2. All SEC-registered firms must issue a statement of cash flows, in addition to the income statement and balance sheet.
a. True
b. False
3. The amount for “net cash from operating activities” will be different depending on if the direct method or the indirect
method is used to construct the statement of cash flows.
a. True
b. False
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4. Transactions that involve the acquisition or sale of long-term assets are generally classified as investing activities on the
statement of cash flows.
a. True
b. False
5. Noncash investing and financing transactions, such as the exchange of common stock to purchase assets, represent
significant investing and financing activities and are disclosed in a supplementary schedule that is attached to the
statement of cash flows.
a. True
b. False
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6. Cash received on the sale of equipment would be considered a financing activity on a statement of cash flows.
a. True
b. False
7. Companies can use two different methods to report the amount of cash flow from their operating activities on the
statement of cash flows.
a. True
b. False
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8. The indirect method of reporting the cash flows from operating activities on the statement of cash flows is the method
most widely used in practice.
a. True
b. False
9. Investments in stock are reported as an investing activity on the statement of cash flows.
a. True
b. False
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10. On the statement of cash flows, the indirect method adjusts net income to determine the net cash flows from operating
activities.
a. True
b. False
11. For a statement of cash flows, firms are required to classify their cash activities into three categories: operating,
investing, and borrowing.
a. True
b. False
12. The sale of land for cash would be classified as a cash inflow from a financing activity.
a. True
b. False
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13. Cash inflows that enter into the determination of net income are classified as financing activities on a statement of
cash flows.
a. True
b. False
14. Cash flow activities that include the cash effect of transactions that create revenues and expenses and thus enter into
the determination of net income are classified as operating activities on the statement of cash flows.
a. True
b. False
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15. The issuance of common stock in exchange for a building would appear both as a cash inflow in the financing
activities section of the cash flow statement and also as a cash outflow in the investing activities section.
a. True
b. False
16. The activity from the balance sheet to be presented in the financing activities section of the statement of cash flows is
based on an analysis of stockholders’ equity only.
a. True
b. False
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17. Under the indirect method of determining the net cash from operating activities on the statement of cash flows,
increases in current assets such as accounts receivable are added to net income.
a. True
b. False
18. Under the indirect method of determining the net cash from operating activities on the statement of cash flows,
depreciation is subtracted from the net income for the period.
a. True
b. False
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19. A decrease in accounts payable is added to net income in the operating activities section of the statement of cash flows
prepared under the indirect method.
a. True
b. False
20. Determining the cash flows from operating activities generally requires analyzing each item on the income statement
as well as the current asset and current liability accounts.
a. True
b. False
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21. A loss on the sale of equipment is subtracted from net income in determining net cash from operating activities under
the indirect method.
a. True
b. False
22. Under the indirect method, the net cash flow from operating activities is computed by adjusting net income to remove
the effect of all deferrals of past operating cash receipts and payments, and all accruals of future operating cash receipts or
payments.
a. True
b. False
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23. If a firm uses the direct method for reporting operating activities on the statement of cash flows, it must present a
separate schedule which reconciles net income to net cash from operating activities.
a. True
b. False
24. The direct method of reporting cash flows from operating activities involves reporting major classes of cash receipts
and cash payments.
a. True
b. False
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25. An advantage to using a worksheet to organize the information of preparation of the statement of cash flows is that it
uses a spreadsheet format allowing the preparer to use a PC and spreadsheet software.
a. True
b. False
26. All firms that are registered with the ______________________ must issue a statement of cash flows.
27. Highly liquid investments such as Treasury bills, money market funds, and commercial paper are examples of
___________________.
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28. Activities that increase cash are sources of cash and are referred to as ___________.
29. Activities that decrease cash are uses of cash and are referred to as ___________.
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30. The format that should be followed in preparing the statement of cash flows is known as the ______________.
31. The indirect method and the direct method differ only on how the cash flows from ________________ are calculated.
32. The ______________ computes operating cash flow by adjusting net income for items that do not affect cash flows.
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33. The __________________ computes operating cash flows by adjusting each line on the income statement to reflect
cash flows.
34. The _____________________ provides information regarding the sources and uses of a firm’s cash.
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35. ________________ are the ongoing, day-to-day, revenue-generating activities of an organization.
36. Acquiring new equipment, selling long-term investments, and purchasing land are all examples of _______________.
37. Issuing shares of common stock, paying dividends and paying off debt are all examples of _______________.
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38. When an investing or financing activity takes place without affecting cash it is referred to as
_________________________.
39. The two approaches to calculating operating cash flows are the _______________ and the _____________.
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40. Income statements are prepared on a (n) ______________.
41. Preparation of the statement of cash flows relies on the beginning and ending ____________.
42. Using the ________________ of reporting cash flow, each line on the income statement is adjusted to produce a cash
flow income statement.
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43. Some individuals prefer to show operating cash flows as the difference between ___________ and ____________.
44. As transactions increase in number and complexity, a ____________ becomes a useful aid in preparing the statement
of cash flows.
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45. Worksheets offer increased ____________ in form and the added convenience of spreadsheet software packages.
46. The primary purpose of the statement of cash flows is to
a. provide information about the investing and financing activities during the period.
b. prove that revenues exceed expenses if there is a net income.
c. provide information about the sources and uses of cash during a period.
d. facilitate banking relationships.
47. The statement of cash flows does not report the
a. sources of cash in the current period.
b. uses of cash in the current period.