Cash Flow Statements

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10 Questions

Which method of preparing a cash flow statement uses actual cash inflows and outflows?

Direct method

What does the indirect method of preparing a cash flow statement begin with?

Net income or loss from the income statement

Who can benefit from knowing how to read and understand a cash flow statement?

All of the above

What does a cash flow statement provide information about?

Actual cash inflows and outflows

How are cash inflows and outflows reported in a cash flow statement prepared using the direct method?

Using cash payments and receipts

Which method of preparing a cash flow statement uses actual cash inflows and outflows?

The direct method

What is the difference between the direct method and the indirect method of preparing a cash flow statement?

The direct method uses known amounts of cash inflows and outflows, while the indirect method does not

What does the indirect method of preparing a cash flow statement begin with?

Net income or loss from the income statement

How are cash inflows and outflows reported in a cash flow statement prepared using the direct method?

Using cash payments and receipts

What can a cash flow statement provide information about?

The financial health of a company

Study Notes

Cash Flow Statement Preparation

  • The direct method of preparing a cash flow statement uses actual cash inflows and outflows.
  • The indirect method of preparing a cash flow statement begins with net income.

Benefits of Cash Flow Statement

  • Stakeholders, investors, creditors, and management can benefit from knowing how to read and understand a cash flow statement.

Cash Flow Statement Information

  • A cash flow statement provides information about a company's inflows and outflows of cash over a particular period.
  • It provides information about a company's ability to generate cash, pay its debts, and fund its investments.

Direct Method Cash Flow Statement

  • In a cash flow statement prepared using the direct method, cash inflows and outflows are reported separately, showing the sources of cash inflows and the uses of cash outflows.

Direct vs. Indirect Method

  • The direct method uses actual cash inflows and outflows, while the indirect method begins with net income and adjusts for non-cash items and changes in working capital accounts.

Test your knowledge on cash flow statements and their importance in financial reporting. This quiz will cover the direct and indirect methods, as well as provide examples to help you understand how cash inflows and outflows are determined.

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