Q: Which formula correctly calculates the change in cash during an accounting period?

$$\text{Change in Cash} = \text{Ending Cash} - \text{Beginning Cash}$$

Q: Which equation best represents the relationship between cash flows and changes in balance sheet accounts?

$$\text{Change in Cash} = \text{Change in all other balance sheet accounts}$$

Question 1

Which of the following best explains why a company with rising net income might still face bankruptcy, as illustrated by the Lehman Brothers example?

Accepted Answer

Positive net income does not guarantee sufficient cash to meet obligations if cash is not generated from operations.

Question 2

Which section of the statement of cash flows would you find cash paid for the purchase of new equipment?

Accepted Answer

Investing activities

Question 3

A company reports the following for the year: cash inflows from operating activities of $$50,000, cash outflows from investing activities of 20$$,000, and cash inflows from financing activities of $$10,000. What is the change in cash for the year?

$$	ext{Change in Cash} = 	ext{Total Inflows} - 	ext{Total Outflows}$

Accepted Answer

$$\40$$,000$

Question 4

Which of the following is classified as a financing activity on the statement of cash flows?

Accepted Answer

Issuance of company shares

Question 5

If a company receives cash from the sale of a business segment, how should this be classified on the statement of cash flows?

Accepted Answer

Investing activity

Question 6

Which formula correctly calculates the change in cash during an accounting period?

Accepted Answer

$$	ext{Change in Cash} = 	ext{Ending Cash} - 	ext{Beginning Cash}$$

Question 7

Which of the following transactions would NOT be included in the operating activities section of the statement of cash flows?

Accepted Answer

Cash paid for the purchase of equipment

Question 8

A company repays the principal on a long-term loan. How is this transaction classified on the statement of cash flows?

Accepted Answer

Financing activity

Question 9

Which of the following best describes the indirect method for reporting cash flows from operating activities?

Accepted Answer

It starts with net income and adjusts for non-cash items and changes in working capital.

Question 10

If a company pays dividends to its shareholders, how is this transaction classified on the statement of cash flows?

Accepted Answer

Financing activity

Question 11

Which of the following is a key difference between net income and cash flow from operations?

Accepted Answer

Net income includes non-cash items such as depreciation, while cash flow from operations does not.

Question 12

A company purchases shares of another company as a long-term investment. How is this transaction classified?

Accepted Answer

Investing activity

Question 13

Which of the following would increase cash flow from operating activities?

Accepted Answer

Decrease in accounts receivable

Question 14

If a company issues new bonds, how is this transaction reflected on the statement of cash flows?

Accepted Answer

As an inflow in the financing activities section

Question 15

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

Accepted Answer

To calculate net income for the period

Question 16

A company sells a piece of equipment for cash. How is this transaction classified on the statement of cash flows?

Accepted Answer

Investing activity

Question 17

Which of the following is a cash outflow from financing activities?

Accepted Answer

Repurchase of the company's own shares

Question 18

Which equation best represents the relationship between cash flows and changes in balance sheet accounts?

Accepted Answer

$$	ext{Change in Cash} = 	ext{Change in all other balance sheet accounts}$$

Question 19

Which of the following is most likely to be considered an operating activity?

Accepted Answer

Cash received from the sale of goods

Question 20

A company reports the following changes in its balance sheet accounts: increase in accounts receivable of $$5,000, decrease in accounts payable of 2$$,000, and depreciation expense of $$3,000. If net income is 10$$,000, what is the cash flow from operating activities using the indirect method?

$$	ext{Cash Flow from Operations} = 	ext{Net Income} + 	ext{Depreciation} - 	ext{Increase in Accounts Receivable} - 	ext{Decrease in Accounts Payable}$$

Accepted Answer

$$\6$$,000$

Statement of Cash Flows: Concepts, Preparation, and Analysis

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