Cash Flow

Satisfactory Essays
Chapter 5
Statement of Cash Flows

Learning Objectives

1. Identify the purposes of the statement of cash flows 2. Classify activities affecting cash as operating, investing, or financing activities 3. Compute and interpret cash flows from financing activities 4. Compute and interpret cash flows from investing activities 5. Use the direct method to calculate cash flows from operations 6. Use the indirect method to explain the difference between net income and net cash provided by (used for) operating activities 7. Understand why we add depreciation to net income when using the indirect method for computing cash flow from operating activities 8. Show how the balance sheet equation provides a conceptual framework the statement of cash flows

True False

1. The statement of cash flows reports on where cash came from and how it was used. a. True b. False

L.O.: 1 Type: Easy Solution: a

2. Like the income statement, the statement of cash flows covers a period of time. a. True b. False

L.O.: 1 Type: Easy Solution: a

3. A firm may have a significant amount of net income, as computed by accountants on the accrual basis, and yet have a severe decline in cash. a. True b. False

L.O.: 1 Type: Easy Solution: a

4. A statement of cash flows covers a date in time rather than a period of time. a. True b. False

L.O.: 1 Type: Easy Solution: b

5. One of the purposes of a statement of cash flows is to determine a company 's ability to pay its debts when they become due. a. True b. False

L.O.: 1 Type: Easy Solution: a

6. Investing activities involve obtaining resources as a borrower and repaying creditors. a. True b. False

L.O.: 2 Type: Easy Solution: b

7. The issuance of long-term debt results in a cash outflow as reported in the financing section. a. True

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