Accounting 201: Intermediate Financial Accounting I Ch 7. Cash Flow Statements: Direct & Indirect

Statement of Cash Flows

responsible for explaining any changes in the cash balance of a company during an accounting period

Operating Activities

occur during the normal day-to-day operations of a company

Investing Activities

involve buying or selling of long-term assets as well as making or giving loans

Financing Activities

accounting activities that involve cash receipts or cash payments from changes on long-term liabilities

Net Income

the excess of cash that has been received after deducting cash that has been paid out

ABC Ropes is interested in buying a retail store front to sell their ropes as they have previously only been selling online. ABC takes a loan from the bank in order to purchase a retail space outright. ABC receives a $250,000 loan from the bank to purchase their retail space. What is this $250,000 categorized as and what type of activity is it?

1. Cash Inflow, Financing Activity

2. Cash Outflow, Investing Activity

3. Cash Outflow, Operating Activity

4. Cash Inflow, Operating Activity

Cash Inflow, Financing Activity

What is the section of the statement of cash flows that includes activities that occur during the normal day-to-day operations of a company?

1. Equity

2. Financing

3. Operating

4. Assets

Operating

What is the statement of cash flows?

1. It is the statement that explains any changes in the cash balance of a company during an accounting period.

2. It is the financial statement that tells the net profit or loss of a company for a given time period.

3. It is the statement that tells how much of the company's net profit was retained and reinvested in the company.

4. It is the statements that lists all the assets, liabilities and owners equity of a company, and the balances in each account.

It is the statement that explains any changes in the cash balance of a company during an accounting period.

The statement of cash flows is broken down into how many activities?

1. 1

2. 3

3. 4

4. 2

3

Which of the sections of the statement of cash flows includes activities that involve cash receipts or cash payments from changes on long-term liabilities?

1. Investing

2. Equity

3. Financing

4. Operating

Financing

Cash Flow

the money that comes in and goes out of a company generation of income and the payment of expenses

Positive Cash Flow

more cash is coming into the company than leaving the company

Negative Cash Flow

more cash is leaving the company than coming into the company

Cash Flow Statement

a statement of cash receipts and disbursements

You work as an accountant for a small business. The owner of the company has asked you to give her the operating cash flow for the company for the fiscal quarter that just ended. Upon review of the relevant documents, you determine that the company's earnings before taxes and interest for the quarter was $230,000, it depreciated $5,000 worth of equipment and has paid estimated taxes of $20,000. There was no amortization. What is the operating cash flow for the last quarter?

1. $205,000

2. $215,000

3. $230,000

4. $255,000

$215,000

What's the difference between negative cash flow and positive cash flow?

1. Positive cash flow is income, negative cash flow is expenses.

2. Negative cash flow is reported as a liability and positive cash flow is reported as an asset.

3. Positive cash flow means more money is coming in than going out, and negative cash flow means that more money is going out than coming in.

4. Positive cash flow is revenue, negative cash flow is the cost of production.

Positive cash flow means more money is coming in than going out, and negative cash flow means that more money is going out than coming in.

As the CFO of Acme Machinery, Kay finds that her cash received from customers was $20,000, cash paid to employees was $10,000, interest paid was $500 and taxes paid were $5,000. What is her operating cash flow by the direct method?

1. $10,000

2. $4,500

3. $5,000

4. $14,500

$4,500

On which financial statement is cash flow reported?

1. Income statement

2. Accounts receivable and payable

3. Statement of cash flows

4. Balance sheet

Statement of cash flows

What is the best explanation of cash flow?

1. The amount that cash holdings depreciates over time

2. Cash payments to creditors

3. The cash coming into the company and going out of the company

4. The percentage rate over time that cash is received

The cash coming into the company and going out of the company

cash flow statement

shows how money moves through your organization during a given period of time

direct method

• breaks down information more quickly in the operations section of the statement

• manager or accountant consults multiple account journals to gather the relevant information

indirect method

information for its preparation can be lifted straight from readily available forms like the balance sheet or income statement

Which section of the cash flow statement changes depending on whether the direct or indirect method is used to prepare the statement?

1. Accounting

2. Judiciary

3. Financial

4. Operating

Operating

What describes the indirect method of preparing a cash flow statement?

1. Listing the actual cash value of the business.

2. Listing the cash value, plus non-cash assets.

3. Listing the board of directors of your company.

4. Showing how money moves through the organization during a period of time.

Showing how money moves through the organization during a period of time.

Which method for creating a statement of cash flow do small businesses prefer using?

1. The direct method

2. The indirect method

3. The small business method

4. The accounting method

The direct method

What source document would you use for the cash paid to employees section of a direct cash flow statement?

1. Bank statements

2. Labor-hours per machine

3. Hourly time sheets

4. Payroll journal

Payroll journal

Your company purchases a large piece of equipment. Which section of a cash flow statement will this affect?

1. Financing activities

2. All the activity sections

3. Operating activities

4. Investing activities

Investing activities

cash flow statements

show how money moves through an organization

Which of these is an advantage of the direct method?

1. Hiring assistance for direct method is cheap.

2. It's easy to follow the money.

3. It's really easy to prepare.

4. There is no accounting for non-cash assets.

It's easy to follow the money.

Which of these is a disadvantage of the direct method?

1. It's really easy to prepare.

2. It's easy to follow the money.

3. There is no accounting for non-cash assets.

4. The direct method affects only the financial section.

There is no accounting for non-cash assets.

What section of the cash flow statement would list where payments went?

1. Nowhere on the statement

2. Investment Section

3. Financial Section

4. Operating Section

Operating Section

A cash flow statement is a:

1. Document listing the board of directors of a company.

2. Document showing what money goes out but not in.

3. Document showing how money moves through an organization.

4. Document listing the incorporation of a company.

Document showing how money moves through an organization.

Which of these sections of the cash flow statement is affected by the direct method?

1. Investments

2. All sections are affected

3. Operations

4. Financing

Operations

cash flow statement

the measure of how money moves through an organization

What is a cash flow statement?

1. Using existing documents to cover up fraud

2. A process using both documentation and business assets to assess its worth

3. A document detailing a CEO's yearly expenses

4. A document detailing how money flows through a business

A document detailing how money flows through a business

What section of the cash flow statement changes based on whether you use the indirect or direct method of preparation?

1. Operations

2. Financial

3. Accounting

4. Janitorial

Operations

What is the indirect method of preparing a cash flow statement?

1. A method to document how money flows through a business

2. Using existing documents to cover up fraud

3. A process using both documentation and business assets to assess its worth

4. A document detailing a CEO's yearly expenses

A method to document how money flows through a business

What is the biggest advantage of the indirect method of preparing a cash flow statement?

1. It only takes 5 minutes to prepare every time

2. No one really pays attention to the work on the indirect method

3. Most of the information is already on hand

4. Specialists have to prepare the information

Most of the information is already on hand

Which of these do not affect the indirect method of preparing a cash flow statement?

1. Depreciation

2. Amortization

3. Inventory

4. The CEO's salary

The CEO's salary

External Audit

an examination of a company’s financial records by someone that is not an employee of the company itself

Auditor

looks over the financial records of the company

GAAP

generally accepted accounting principles

Financial Accounting Standards Boards (FASB)

the judge and jury in the accounting world

GAAS

• generally accepted auditing standards

• they help ensure the accuracy, consistency and verifiability of the auditors reports

Investors

the people who have invested money into a company, as well as those who are considering making an investment in the company

Regulators

groups of people who spend their time reviewing practices of a company that are outlined in audit reports

Company Leaders

those people in management that direct the actions taken by the company

Identify the person that performs the financial statement audit?

1. Manager

2. CEO

3. Auditor

4. Regulator

Auditor

The people that have invested money into a company, as well as those who are considering making an investment into the company, are called _____.

1. Auditors

2. Investors

3. Regulators

4. Company Leaders

Investors

Identify the person that reviews the audit report of a company to see if the company is being compliant with the law.

1. Regulator

2. Adjustor

3. Examiner

4. Auditor

Regulator

Bob is an accountant with ABC Gas. Over the last 6 months, Bob has made intentional errors in his financial reporting in order to earn more money for himself. Who evaluates and will punish Bob's indiscretion?

1. ASPCA

2. FASB

3. PCOB

4. GAAP

FASB

What is the term for an examination of a company's financial records by someone that is not an employee of the company?

1. Internal Audit

2. Auditor

3. Financial Statements

4. External Audit

External Audit

Accounts Receivable (AR)

the money that is owed to the company by customers for goods sold or services rendered

Asset

something that a company owns

Ledger

the place where all the increases and decreases in balance sheet accounts are recorded

Balance Sheet

the financial statement that reports all the accountants that a company has and their balances

Revenue

the amount of money that is received or will be received from a sale

_____are the money that is owed to a company by customers for goods sold or services rendered.

1. Accounts Receivable

2. Bills

3. Accounts Payable

4. Expenses

Accounts Receivable

Whenever a payment is made on an Accounts Receivable account, what account balance increases?

1. Accounts Receivable

2. Revenue

3. Sales

4. Cash

Cash

Which of the following accounts is credited when a new credit sale is recorded on the accounting ledger?

1. Accounts Receivable

2. Sales Expense

3. Sales Revenue

4. Accounts Payable

Sales Revenue

Which two things are required for an Accounts Receivable?

1. Sales and purchases

2. Income and expenses

3. Balance sheet and ledger

4. Customers and managers

Sales and purchases

Why would the Accounts Receivable account balance decrease?

1. A payment is made by the customer.

2. A sale is completed by the business.

3. A bill is paid by the business.

4. A customer returns an item.

A payment is made by the customer.