Topic 5 - The Statement of Cash Flows

The statement of cash flows

• Summarizes all cash inflows and outflows of an entity for a given period of time

• Provides a connecting link between two consecutive income statements

• Is a required statement only for those companies using cash-basis accounting

• Is intended primarily to provide necessary information for assessing the profitability of an entity

Summarizes all cash inflows and outflows of an entity for a given period of time

The statement of cash flows replaces the

• Balance sheet

• Statement of financial position

• Income statement

• None of these

None of these

Which of the following is NOT a purpose of the statement of cash flows?

• It provides investors with information about the investing and financing activities of an entity.

• It provides information about an entity's cash receipts and payments over a period of time.

• It highlights changes in managerial strategy regarding investments and finances.

• It measures the profitability of an entity.

It measures the profitability of an entity

• The statement of cash flows includes transactions that are not already reflected in the balance sheet and income statement.

• The statement of cash flows sheds some light on a company's ability to generate income in the future.

• The statement of cash flows does not replace the income statement.

• The statement of cash flows provides details as to how the cash account changed during a period.

The statement of cash flows includes transactions that are not already reflected in the balance sheet and income statement

Significant noncash financing and investing transactions are

• Reported in a narrative or in a separate schedule

• Converted to cash equivalents

• Listed in the body of a statement of cash flows

• Reported under the financing and investing activities sections

Reported in a narrative or in a separate schedule

Which of the following would NOT be considered cash or cash equivalents for purposes of preparing a statement of cash flows?

• Checking accounts

• Notes receivable

• Treasury bills

• Money market funds

Notes Receivable

Which of the following would be reported as an operating activity on a statement of cash flows?

• Payment of taxes

• Repayment of a loan

• Payment of dividends

• Purchase of a building

Payment of taxes

Which of the following is the typical sequencing of activities on the statement of cash flows?

• Investing, financing, and operating

• Investing, operating, and financing

• Operating, financing, and investing

• Operating, investing, and financing

Operating, investing, and financing

Significant noncash financing transactions

• Are deducted from net income to determine cash provided by operating activities on a statement of cash flows

• Are included parenthetically on a statement of cash flows

• Should not be disclosed at all since they are irrelevant to actual performance

Should not be disclosed in the body of a statement of cash flows but should appear in the notes to the financial statements elsewhere

What are Operating activities?

day to day operations and the reason a company is in business. to purchase and sell inventory. to pay for expenses like wages, rent, taxes

What are Investing activities?

selling and buying property, plant, and equipment to expand the business needs, lending and collecting on loans, investing in stocks, bonds or other companies

What are Financing activities?

obtaining resources from owners like lenders, obtaining resources from creditors and the payment of those loans and credit, paying dividends to owners,