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ACCT 3130
Chapter 23 Terms/Questions
| Question | Answer |
|---|---|
| Operating Activities | all transactions and events that are not investing and financing activities (transactions that enter into the determination of net income) |
| Investing Activities | making and collecting loans and acquiring and disposing of investments and productive long-lived assets (land, equipment, buildings, etc.) |
| Financing Activities | involve liability and owner's equity items |
| The information used to prepare the statement of cash flows generally comes from 3 major sources... | comparative balance sheets, the current income statement, and selected transaction data |
| 3 steps in preparation of the statement of cash flows. | 1. determine the change in cash, 2. determine the net cash flow from operating activities, 3. determine cash flows from investing and financing activities |
| To compute net cash flows from operating activities, it is necessary to report revenues/expenses on the _______ (accrual / cash) basis. | the cash basis |
| The Direct Method (Operating Activities) | the difference between cash revenues and expenses represents net cash flows from operating activities |
| The Indirect Method (Operating Activities) | The accrual-based amount of net income is converted to net cash provided by operating activities by adding back non cash expenses and deducting non cash revenues |
| FASB Requirements: Direct Method | requires that a reconciliation of net income to net cash flow from operating activities shall be provided in a separate schedule |
| The principal advantage of the direct method is... | that it shows operating cash receipts and payments |
| Significant Noncash Transactions | investing or financing activities that do not involve cash and are material in amount (ex: refinancing of long-term debt) |
| Statement of Cash Flows | financial statement that reflects an entity's cash receipts classified by major sources and its cash payments classified by major uses |
| The primary purpose of the statement of cash flows is to provide information about... | the cash receipts and cash payments of an entity during the period. |
| The first step in the statement of C.F. requires the use of information from which comparative financial statement? | the balance sheets |
| Cash Equivalents are... | treasury bills, investments with maturity within 3 months, readily convertible into known amounts of cash, commercial paper, money market funds |
| A company borrows $10,000 on a 90-day non-tradeable note-payable. How is this reflected on the statement of C.F.? | as a cash inflow (gained $10,000 cash) from a financing activity (note payable) |
| To arrive at net cash from operating activities, revenues/expenses must be reported on a cash basis. This is done by... | eliminating the effects of income statement transactions that did not result in a corresponding increase/decrease in cash |
| Indirect method: how would an increase in inventory balance be reported in a statement of C.F.? | as a deduction from net income (while arriving at net cash flow from operating activities) [increase in inventory means more inventory was purchased than sold] |
| A statement of C.F. _______ does/not disclose the effects of stock dividends declared. | does NOT |
| Declaration of a cash dividend on common stock ______ does/not affect cash flows from operating activities under the _____ direct/indirect/neither method. | does NOT affect EITHER |
| In a statement of cash flows, the cash flows from investing activities section should report.... | a major repair to machinery charged to accumulated depreciations |
| The amortization of bond premium on long-term debt should be presented in a statement of cash flows as.... (indirect method) | as a deduction from net income |
| An increase in ending inventory over beginning will result in an adjustment to reported net earnings because... (indirect method) | cost of goods sold on an accrual basis is lower than on a cash basis |
| A decrease in A/R during a period would cause a(n) _________ (inc/decrease/no effect) when using ______ (in/direct/both) method(s) | would cause an INCREASE.....using BOTH METHODS |
| In determining net cash flows from operating activities, a decrease in A/P during a period... | requires an increase adjustment to cost of goods sold under the direct method |
| T/F: The direct method is more consistent with the primary purpose of the statement of cash flows. | True |
| Are stock dividends, stock splits, appropriations of retained earnings, or none of these reported on a statement of cash flows? | NONE OF THESE ARE REPORTED |
| How should significant noncash transaction be reported on the statement of cash flows according the the FASB? | they are not to be incorporated in the statement of cash flows, but may be summarized in a separate schedule at the bottom of the statement or as a supplementary schedule to the F.S. |
| In reporting extraordinary transactions on a statement of cash flows (indirect method), the... | gross amount of an extraordinary gain should be deducted from net income |
Created by:
TChamberlain