When analyzing historical revenue in the context of the statement of cash flows, which question are you most likely to ask?

• A. How much of the reported revenue was actually collected in cash during the period?
• B. How were the company’s liabilities affected by depreciation expense?
• C. What is the total amount of assets owned by the company?
• D. What is the company’s net income for the period?

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the context of the statement of cash flows. The statement of cash flows focuses on cash inflows and outflows during a specific period, providing insights into the company's liquidity and cash management.
2. Step 2: Recognize that historical revenue is reported on the income statement, which uses accrual accounting. This means revenue is recorded when earned, not necessarily when cash is received.
3. Step 3: Identify the key question related to cash flows and revenue. Since the statement of cash flows deals with actual cash transactions, the relevant question would be about how much of the reported revenue was collected in cash during the period.
4. Step 4: Eliminate irrelevant options. Questions about liabilities affected by depreciation, total assets owned, or net income are not directly related to the cash flow analysis of revenue.
5. Step 5: Conclude that the most relevant question for analyzing historical revenue in the context of the statement of cash flows is: 'How much of the reported revenue was actually collected in cash during the period?'