8 Questions
Which section of the cash flow statement reports the cash effects of a company's investing activities?
Investing activities section
What would be the effect on the cash flow from operating activities if accounts receivable increased?
It would increase
How are dividends paid to shareholders usually classified in the cash flow statement?
As a financing activity
If a company purchases new equipment using cash, how does this transaction affect the cash flow statement?
Investing activities section increases
In which section of the cash flow statement would an increase in accounts payable be reported?
Operating activities
What is the primary purpose of a cash flow statement?
To provide information about the company's cash receipts and cash payments
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
If a company issues bonds at a premium, how does this transaction affect the cash flow statement?
It increases cash flow from financing activities
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.
Test your knowledge of the cash flow statement with these questions about investing activities, accounts receivable, dividends, and equipment purchases.
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