Exam 15: Supplement: the Statement of Cash Flows

On a statement of cash flows prepared using the direct method,if certain expenses do not require a current outlay of cash,those expenses must be subtracted from operating expense to arrive at cash payments for operating expenses.

On a statement of cash flows prepared using the direct method,if inventory has decreased from one accounting period to another,net purchases will be greater than the cost of goods sold because net purchases during the period have exceeded the dollar amount of the items sold during the period.

The principal difference between the indirect and the direct methods appears in the cash flows from investing activities section of the statement of cash flows.

How is it possible for a company to show a net loss for a given year,yet produce positive net cash flows from operating activities?

Assume the direct method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Decrease in Accrued Liabilities-indicate the effect on cash payments for operating expenses by choosing one of the following:

Determining net cash flows from operating activities using the direct method reveals cash collected from customers.

Since interest and dividends received are most closely associated with investment activity and are often called investment income,the FASB classifies the cash received from these items as investing activities.

Using the direct method,calculate the amount of cash receipts from sales.Show your work

On a statement of cash flows prepared using the direct method,credit sales are a direct cash inflow.

The direct method of preparing the statement of cash flows

On a statement of cash flows prepared using the direct method,a schedule must be provided that reconciles net income to net cash flows from operating activities.

Assume the direct method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Gain on Sale of Investment-indicate the effect on cash flows from operating activities by choosing one of the following:

Which of the following items would not be included in a statement of cash flows prepared using the direct method?

On a statement of cash flows prepared using the direct method,if accounts payable have decreased,cash payments for purchases will be greater than net purchases.

If the direct method is used to prepare a statement of cash flows,the cost of goods sold from the income statement will be adjusted

Assume the direct method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Decrease in Accounts Receivable-indicate the effect on cash receipts from sales by choosing one of the following:

On a statement of cash flows prepared using the direct method,the amount representing cash paid for interest would

On a statement of cash flows prepared using the direct method,if accounts receivable decrease from one accounting period to the next,cash receipts from sales will not be as great as sales.

Assume the direct method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Decrease in Accounts Payable-indicate the effect on cash payments for purchases by choosing one of the following:

If the direct method is used to prepare a statement of cash flows,credit sales may not automatically create a cash inflow because