Question 1

Which of the following best explains why net income does NOT equal net cash flow?

Accepted Answer

Net income is based on accrual accounting, recognizing revenues and expenses when earned or incurred, not when cash is received or paid.

Question 2

A company reports a net income of $$50,000. During the year, accounts receivable increased by 10$$,000, inventory decreased by $$5,000, and accounts payable increased by 7$$,000. What is the net cash flow from operating activities? Use the formula: $$	ext{Net Cash Flow} = 	ext{Net Income} + 	ext{Depreciation} - \Delta 	ext{AR} - \Delta 	ext{Inventory} + \Delta 	ext{AP} ($$Assume no depreciation for this problem).

Accepted Answer

$$50,000 - 10,000 + 5,000 + 7,000 = 52$$,000$

Question 3

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

Accepted Answer

Investing Activities

Question 4

If a company issues new long-term debt, how is this reflected on the statement of cash flows?

Accepted Answer

As a cash inflow in the financing section

Question 5

Which of the following changes would result in a cash outflow when analyzing balance sheet accounts?

Accepted Answer

Increase in assets or decrease in liabilities

Question 6

A company had the following changes during the year: Gross fixed assets increased by $$20,000, accumulated depreciation increased by 5$$,000. What is the net cash flow from investing activities? Use the formula: $$	ext{Net Cash Flow from Investing} = -\Delta 	ext{Gross Fixed Assets}$$

Accepted Answer

$$-20,000$$

Question 7

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

Accepted Answer

Cash flow from retained earnings

Question 8

If accounts payable increases by $8,000 during the year, how does this affect cash flow from operating activities?

Accepted Answer

It increases cash flow from operating activities by $8,000

Question 9

A company pays $5,000 in dividends during the year. How is this transaction reflected in the statement of cash flows?

Accepted Answer

As a cash outflow in the financing section

Question 10

Which of the following best describes the difference between the income statement and the balance sheet?

Accepted Answer

The income statement measures flow over a period; the balance sheet is a snapshot at a point in time.

Question 11

A company’s net income is $$40,000. Depreciation expense is 6$$,000. Accounts receivable increased by $$3,000, and accounts payable decreased by 2$$,000. What is the net cash flow from operating activities? Use the formula: $$	ext{Net Cash Flow} = 	ext{Net Income} + 	ext{Depreciation} - \Delta 	ext{AR} + \Delta 	ext{AP}$$

Accepted Answer

$$40,000 + 6,000 - 3,000 - 2,000 = 41$$,000$

Question 12

Which of the following transactions would be classified as a cash inflow from financing activities?

Accepted Answer

Issuance of common stock

Question 13

If a company repays $10,000 of long-term debt, how is this reflected in the statement of cash flows?

Accepted Answer

As a cash outflow in the financing section

Question 14

Which of the following is true regarding the statement of cash flows?

Accepted Answer

It provides information about cash inflows and outflows during an accounting period.

Question 15

A company’s gross fixed assets increased by $$30,000 and accumulated depreciation increased by 10$$,000. What is the net cash flow from investing activities?

Accepted Answer

$$-30,000$$

Question 16

Which of the following would NOT be considered a cash flow from operating activities?

Accepted Answer

Cash paid for equipment

Question 17

If inventory increases by $4,000 during the year, how does this affect cash flow from operating activities?

Accepted Answer

It decreases cash flow from operating activities by $4,000

Question 18

Which of the following best describes the purpose of the statement of cash flows?

Accepted Answer

To provide information about changes in cash during a period

Question 19

A company’s net income is $$25,000. Depreciation expense is 3$$,000. Accounts receivable decreased by $$2,000, and accounts payable increased by 1$$,000. What is the net cash flow from operating activities? Use the formula: $$	ext{Net Cash Flow} = 	ext{Net Income} + 	ext{Depreciation} + \Delta 	ext{AR} + \Delta 	ext{AP}$$

Accepted Answer

$$25,000 + 3,000 + 2,000 + 1,000 = 31$$,000$

Statement of Cash Flows: Concepts, Construction, and Analysis

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