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Questions and Answers
Which section of the cash flow statement reports the cash effects of a company's investing activities?
Which section of the cash flow statement reports the cash effects of a company's investing activities?
- Investing activities section (correct)
- Non-cash activities section
- Financing activities section
- Operating activities section
What would be the effect on the cash flow from operating activities if accounts receivable increased?
What would be the effect on the cash flow from operating activities if accounts receivable increased?
- It would decrease
- It depends on other factors
- It would increase (correct)
- It would remain unchanged
How are dividends paid to shareholders usually classified in the cash flow statement?
How are dividends paid to shareholders usually classified in the cash flow statement?
- As a financing activity (correct)
- As a non-cash activity
- As an operating activity
- As an investing activity
If a company purchases new equipment using cash, how does this transaction affect the cash flow statement?
If a company purchases new equipment using cash, how does this transaction affect the cash flow statement?
In which section of the cash flow statement would an increase in accounts payable be reported?
In which section of the cash flow statement would an increase in accounts payable be reported?
What is the primary purpose of a cash flow statement?
What is the primary purpose of a cash flow statement?
How does the direct method of reporting cash flows from operating activities differ from the indirect method?
How does the direct method of reporting cash flows from operating activities differ from the indirect method?
If a company issues bonds at a premium, how does this transaction affect the cash flow statement?
If a company issues bonds at a premium, how does this transaction affect the cash flow statement?
Study Notes
Cash Flow Statement Sections
- The Investing Activities section of the cash flow statement reports the cash effects of a company's investing activities.
Cash Flow from Operating Activities
- An increase in accounts receivable would decrease the cash flow from operating activities.
- An increase in accounts payable would increase the cash flow from operating activities.
Classification of Dividends
- Dividends paid to shareholders are usually classified as a cash outflow in the Financing Activities section of the cash flow statement.
Cash Flow Statement Effects
- Purchasing new equipment using cash would decrease the cash flow from investing activities.
- Issuing bonds at a premium would increase the cash flow from financing activities.
Purpose of Cash Flow Statement
- The primary purpose of a cash flow statement is to provide information about a company's inflows and outflows of cash over a particular period of time.
Direct vs. Indirect Method
- The direct method of reporting cash flows from operating activities presents the major classes of operating cash receipts and payments, while the indirect method reconciles net income to net cash flow from operating activities.
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Description
Test your knowledge of the cash flow statement with these questions about investing activities, accounts receivable, dividends, and equipment purchases.
