Deck 9: The Cash Flow Statement: Content and Use

Question 1

The cash flow statement primarily provides information about a business' ability to remain ____________________ and to ___________.

Answer 1

solvent; grow

Question 2

A cash flow statement shows the changes in a business' cash during an accounting period by listing the ____________________ and ____________________ of cash from its operating, investing and financing activities during the period.

Answer 2

inflows; outflows

Question 3

To use a business' cash flow statement for evaluating its performance, you first must understand how the business' _____________ _______________ provides the cash flow information.

Answer 3

accounting system

Question 4

To understand a cash flow statement, you need to know the kinds of ____________________ that cause a business' cash inflows and outflows.

Question 5

Cash inflows are caused by certain decreases in ____________________, increases in ____________________, and increases in ____________________ during an accounting period.

Question 6

The cash inflows and cash outflows for operating activities are not ________ to the revenue and expenses included in net income.

Question 7

One type of transaction that may cause cash outflows, involves increases in _________________ other than cash.

Question 8

The cash flow statement shows a business' cash flows in three sections: ____________________activities, ____________activities and ____________ activities.

Question 9

Cash flows classified as ____________________activities are from transactions that affect investments in non-current assets of the business.

Question 10

The two methods of calculating and reporting a business' net cash flows from operating activities are the _________________ method and the____________________ method.

Question 11

Under the indirect method of calculating cash flow from operating activities, income inflows are converted from an _________________ basis to a ____________________ basis.

Question 12

Cash flows from the operating activities provides financial statement users with information about its ability to obtain cash from its ___________ activities.

Question 13

The cash flow statement classifies cash collections from customers as a cash inflow from ___________ activities.

Question 14

The cash flow statement classifies cash payments to suppliers as a cash outflow from ___________ activities.

Question 15

A business' ____________________ is the average time required to pay for inventory, sell the inventory and collect on the sales.

Question 16

If the accounts receivable balance increases during the accounting period, this means _________ cash was collected than the amount of credit sales made for the period.

Question 17

The calculation of cash paid to employees usually involves use of one __________ __________ account and one _________ ___________ account.

Question 18

The operating cash flow margin is calculated as: net cash flows from operating activities divided by ______ ___________.

Question 19

The _________ ___________ is related to the cash flow statement in much the same way as it is related to the income statement.

Question 20

In making a decision to postpone payments to suppliers, managers and owners must look 'beyond the numbers' and consider all the _______________ the decision affects.

Question 21

A business' ending cash balance is the amount of cash listed on its bank statement at the end of the current accounting period.

Question 22

Inflows of cash may come from decreases in assets other than cash.

Question 23

Inflows of cash may come from decreases in liabilities.

Question 24

Inflows of cash come may come from increases in owner's equity.

Question 25

Cash flows are classified as profit activities, asset activities and liability activities on the cash flow statement.

Question 26

Operating activities include the primary activities of buying, selling and delivering goods for sale.

Question 27

Financing activities are transactions that affect investments in non-current assets of the business.

Question 28

Under the direct method, a business adjusts its net income to calculate the net cash flow from operating activities.

Question 29

To begin its operating cycle, a business buys inventory for cash or on credit (increasing accounts payable).

Question 30

Under accrual accounting, a business records its revenue and related expense transactions in a different accounting period than it provides goods or services.

Question 31

A Sales Revenue account normally includes both cash and credit sales.

Question 32

An Accounts Receivable account (a current asset) includes increases due to the credit sales and decreases due to collections of accounts receivable.

Question 33

The Salaries Payable account (a current liability) includes decreases due to salaries owed to employees at the end of the current accounting period.

Question 34

If the Inventory account decreases during the accounting period, this means more inventory was purchased than sold.

Question 35

Financial statement users think that cash flows are a critical part of a business' ability to remain solvent.

Question 36

By reviewing a business' cash flow statement, external users can see how a business obtained and used its cash.

Question 37

Managers are able to use the information in the cash flow statement in much the same way as external users do.

Question 38

Financial statement users assess a business' liquidity and solvency to see whether a business is generating enough cash to pay its debts.

Question 39

External users can compare the business' net cash flow from operating activities for a given year with that year's income from operations to assess how well its operating activities provide cash.

Question 40

A business's ability to generate enough cash to remain in business and earn a satisfactory profit can also be studied by computing its cash flow returns.

Question 41

Managers can evaluate their business' operating performance by comparing the information from the operating activities section of the business' cash flow statement with the projected operating cash flow in the cash budget.

Question 42

The income statement and the cash flow statement are related because both report on a business' activities at a specific point in time.

Question 43

The operating cash flow margin describes how much net cash the business generated from each dollar of net assets.

Question 44

The cash return ratios help managers and external users assess whether or not the business is generating enough cash from its investing activities.

Question 45

Many companies say sustainability reporting leads to higher cash flows.

Question 46

Which of the following is NOT a question that can be answered with the cash flow statement?

A) How much inventory does the business have on hand at the end of the accounting period after cash purchases?
B) How much cash was provided or used by the business' operating activities for the accounting period?
C) How much cash did the business spend or receive in investing activities for the accounting period?
D) What was the cash movement for the accounting period?

Question 47

A cash flow statement shows the changes in a business' cash during:

A) a week.
B) a month.
C) a year.
D) an accounting period.

Question 48

A business' cash flow statement shows:

A) revenues and expenses.
B) assets, liabilities and owner's equity.
C) cash inflows and outflows.
D) monetary assets and liabilities.

Question 49

Which of the following is NOT an example of a cash outflow?

A) purchase of inventory on credit.
B) pay employee wages and salaries.
C) cash withdrawal by the owner.
D) payment of income tax.

Question 50

Which of the following type of transaction will NOT cause a business cash inflow?

A) decrease in assets other than cash.
B) increase in liabilities.
C) decrease in liabilities.
D) increase in owner's equity.

Question 51

Operating activities include:

A) lending money and collecting on the loans.
B) investing in other companies.
C) buying and selling property and equipment.
D) buying and selling inventory to customers.

Question 52

In relation to cash from financing activities, the cash flow statement shows cash:

A) to / from trading activities.
B) to / from the buying and selling of non-current assets.
C) to / from the funders of a business.
D) to / from the funders the employees of a business.

Question 53

Which of the following would NOT be included in the cash from operating activities section?

A) cash received from customers.
B) cash paid to suppliers.
C) cash paid to employees.
D) cash received from a new bank loan.

Question 54

There are two methods for calculating the cash from operating activities, known as:

A) inflow and outflow method.
B) direct and indirect method.
C) cash and accrual method.
D) positive and negative method.

Question 55

Using the indirect method for preparing a cash flow statement, income flows are converted:

A) from a cash basis to an accrual basis.
B) from an accrual basis to a cash basis.
C) from a historical cost basis to a cash basis.
D) from a transaction basis to an accrual basis.

Question 56

One of the purposes of a cash flow statement is to reconcile:

A) net income for the year to the closing cash balance.
B) revenues to cash received from customers.
C) net income for the year to cash from operating activities.
D) the movement in cash from the cash balance at the beginning of the accounting period to the cash balance at the end of the accounting period.

Question 57

If the accounts receivable balance decreases during the accounting period, this means that:

A) more cash was collected than the amount of credit sales that were made.
B) less cash was collected than the amount of credit sales that were made.
C) it does not affect the cash balance.
D) revenue is higher than cash collected.

Question 58

When a business pays its accounts payable:

A) it decreases assets and decreases owner's equity.
B) it decreases assets and decreases liabilities.
C) it decreases liabilities and increases owner's equity.
D) it increases assets and increases owner's equity.

Question 59

To determine if a business is generating enough cash to pay its debts, financial statement users can assess:

A) assets and revenue.
B) expenses and liabilities.
C) liquidity and solvency.
D) financing and investing activities.

Question 60

The cash budget gives a description of the business':

A) operating activities.
B) investing activities.
C) financing activities.
D) planned cash activities.

Question 61

The income statement and cash flow statement are related because both report on:

A) activities during an accounting period.
B) increases in liabilities.
C) increases in owner's equity.
D) movements in cash.

Question 62

The operating cash flow margin is calculated as:

A) net sales divided by net cash flow provided by operating activities
B) net cash flow provided by operating activities divided by net sales
C) net cash flow provided by operating activities divided by average total assets
D) net cash flow provided by operating activities divided by average total equity

Question 63

The operating cash flow margin ratio describes how much:

A) gross cash the business generated from each dollar of gross sales.
B) gross cash the business generated from each dollar of net sales.
C) net cash the business generated from each dollar of net sales.
D) net cash the business generated from each dollar of gross sales.

Question 64

Cash return ratios are used to assess a business' cash flow performance in relation to its:

A) resources.
B) revenue
C) net income
D) net income plus interest.

Question 65

A business' cash return on owner's equity measures how much net cash from operating activities the business has generated with each dollar of:

A) net sales.
B) owner's capital
C) net income plus interest.
D) non-current liabilities.

Question 66

Why is the cash flow statement important?

Question 67

Briefly explain the three main sections within a cash flow statement and provide some examples of items that would normally be contained within each section.

Question 68

Briefly explain what is cash from operating activities.

Question 69

Briefly explain the difference between cash from operating activities and net income.

Question 70

What are cash flows from investing activities? Provide some examples to support your answer.

Question 71

What are cash flows from financing activities? Provide some examples to support your answer.

Question 72

Would depreciation appear as an operating, investing or financing activity in a cash flow statement?

Question 73

What is the difference between a cash flow statement and a cash budget?

Question 74

Briefly explain the purpose of the 'operating cash flow margin' ratio.

Question 75

Identify which section of the statement of cash flows each of the following events would appear in (operating, investing and financing or not applicable):
a) Purchased a patent
b) Sold shares in a listed company
c) Cash paid to suppliers
d) Bought long-term investments
e) Purchased a building
f) Received new loan from bank.
g) Paid dividends
h) Purchased inventory on credit
i) Issued shares for cash.

Question 76

For each of the following situations indicate the items to be reported on the statement of cash flows, the section of the statement in which the item would appear and the amount.
a) The board of directors declared cash dividends totalling $240 000 which were paid during the current year.
b) Office equipment, which had cost $245 000 and on which accumulated depreciation totalled $95 000 on the date of sale, was sold for $130 000 during the year.
c) Delivery equipment, which had cost $39 000 and on which accumulated depreciation totalled $23 000 on the date of sale, was sold for $20 000 during the year.
d) Received cash from the issue of 5 000 shares at $50 per share during the year.
e) The company purchased land with a mortgage note payable.
f) Depreciation expense reported on the income statement was $55 000.
g) Repaid bank loan of $60 000.