Exam 23: Statement of Cash Flows

Match the terms with the definitions. -Investing and financing activities that involve no cash flows, but represent a significant change in the company's financial position.

Interest received on loans made to borrowers is an example of a financing activity.

Although the accrual basis of accounting is an excellent method for measuring profitability, it does not explain why a company's liquidity has improved or worsened.

An example of a cash outflow from investing activities is

(Appendix) The following activities took place at Amity Harbor Corporation during the past year. Indicate whether each activity is a cash inflow (+) or cash outflow (−), and whether it is an operating (O), investing (I), or financing (F) activity.

An example of a cash inflow from operating activities is

Gains on the sale of plant and equipment should be subtracted from net income when computing cash from operating activities.

Match the terms with the definitions. -A method of reporting cash from operating activities in which net income is adjusted for transactions that affect both net income and cash from operating activities but in different ways.

Cash generated from operating activities may be computed and reported using

(Appendix) A decrease in Accounts Receivable represents an increase in the cash generated from sales.

The statement of cash flows is divided into three sections: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.

Under the indirect method, a decrease in Accounts Payable must be subtracted from net income when computing cash from operating activities.

Cash generated from operating activities has traditionally been computed by combining the direct and the indirect methods.

Match the terms with the definitions. -A financial statement associated with the operating, investing, and financing activities of a company.

(Appendix) Cash flows from investing activities are computed and reported in the same manner under the direct and indirect method.

The managers of a business have the dual objective of generating net income (profitability) and keeping the enterprise solvent (liquidity).

Some investing and financing activities involve no cash flows so they

Achieving profitability will automatically assure sufficient amounts of cash.

Under the indirect method, an increase in Accounts Receivable must be added to net income when computing cash from operating activities.

Those transactions dealing with the exchange of cash between the firm and its owners (stockholders) and creditors are called