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Cash Flow Statement Questions

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Questions and Answers

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?

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?

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?

Investing activities section increases (A) Signup and view all the answers

In which section of the cash flow statement would an increase in accounts payable be reported?

Operating activities (C) Signup and view all the answers

What is the primary purpose of a cash flow statement?

To provide information about the company's cash receipts and cash payments (C) Signup and view all the answers

How does the direct method of reporting cash flows from operating activities differ from the indirect method?

The direct method deducts operating expenses from revenues, while the indirect method starts with net income and adjusts for non-cash items (D) Signup and view all the answers

If a company issues bonds at a premium, how does this transaction affect the cash flow statement?

It increases cash flow from financing activities (B) Signup and view all the answers

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.