• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/50

Click to flip

50 Cards in this Set

  • Front
  • Back
Most managers stress the importance of understanding and predicting cash flows for business decisions.
TRUE
Managers only use the cash flow statement to evaluate the net cash increase or decrease, and do not pay much attention to the details of cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.
FALSE
A cash-based measure to help business decision makers estimate the amount and timing of cash flows is the cash flow on total assets ratio.
TRUE
The cash flow on total assets ratio can be used as an indicator of earnings quality.
TRUE
Cash flow amounts and their timing should be considered when planning and analyzing operating activities
TRUE
The cash flow on total assets ratio is computed by dividing cash flows from operations by average total assets.
TRUE
The cash flow on total assets ratio is computed by dividing average total assets by
operating income.
FALSE
The cash flow on total assets ratio reflects actual cash flows and is therefore affected by the accounting constraints of recognition and measurement for net income.
FALSE
A cash coverage ratio of less than 1 indicates cash inadequacy to meet asset growth.
TRUE
The primary purpose of the statement of cash flows is to report all major cash receipts (inflows) and cash payments (outflows) during a period.
TRUE
To be classified as a cash equivalent, the only criterion an item must meet is that it must be readily convertible to a known amount of cash.
FALSE
The statement of cash flows explains the difference between the beginning and ending balances of cash and cash equivalents.
TRUE
Internal users of the statement of cash flows often use cash flow information to plan day-today operating activities and make long-term investment and financing decisions.
TRUE
A cash equivalent must be readily convertible to a known amount of cash, and must be sufficiently close to its maturity so its market value is unaffected by interest rate changes.
TRUE
Business activities that generate or use cash are classified as operating, investing, or
financing activities on the statement of cash flows.
TRUE
Financing activities include (a) the purchase and sale of long-term assets, (b) the purchase and sale of short-term investments, and (c) lending and collecting on loans.
FALSE
Cash paid for merchandise is an operating activity.
TRUE
The purchase of stock in another company is classified as a financing activity.
FALSE
Receipts of cash dividends and interest earned on loans are classified as investing
activities.
FALSE
The payment of cash dividends to shareholders is classified as a financing activity.
TRUE
The full disclosure principle requires that non-cash investing and financing activities be disclosed in the financial statements.
TRUE
Conversion of preferred stock to common stock is disclosed in the financing section of the statement of cash flows.
FALSE
A purchase of land in exchange for a long-term note payable is reported in the investing section of the statement of cash flows.
FALSE
A non-cash investing transaction should be disclosed in either a footnote or at the bottom of the statement of cash flows.
TRUE
A company purchased equipment for $150,000 by paying $50,000 and signing a $100,000 note payable. The entire transaction is disclosed to users on the statement of cash flows and/or in the notes to the financial statements.
TRUE
A purchase of land in exchange for shares of stock is disclosed on the statement of cash flows or in a note to the statement.
TRUE
Accounting standards require companies to include a statement of cash flows in a complete set of financial statements.
TRUE
The statement of cash flows explains how transactions and events impact the end-of period cash balance to produce the end-of-period net income.
FALSE
Financing activities include receiving cash dividends from investments in other companies' stocks.
FALSE
Investing activities include: (a) the purchase and sale of long-term assets, (b) lending and collecting on notes receivable, and (c) the purchase and sale of short-term investments in the securities of other entities, other than cash equivalents and trading securities.
TRUE
Financing activities include receiving cash from issuing debt and receiving cash dividends from investments in other companies' stocks.
FALSE
The usual first step in preparing the statement of cash flows is computing the net increase or net decrease in cash.
TRUE
Both the direct and indirect methods yield the identical net cash flow amount provided or used by operating activities.
TRUE
The reporting of financing activities in the statement of cash flows is identical under either the direct or indirect methods.
TRUE
The FASB recommends that the operating section of the statement of cash flows be reported using the direct method.
TRUE
Since it is recommended by the FASB, the direct method of preparing the statement of cash flows is most frequently used.
FALSE
Information to prepare the statement of cash flows usually comes from (a) comparative balance sheets, (b) current income statement, and (c) additional information.
TRUE
The direct method for preparing and reporting the statement of cash flows reports net income and then adjusts it for items necessary to calculate net cash provided or used by operating activities.
FALSE
The indirect method separately lists each major item of operating cash receipts and cash payments.
FALSE
Companies have the option of using either the direct or indirect method to prepare the operating section of the statement of cash flows.
TRUE
When preparing the operating activities section of the statement of cash flows using the indirect method, expenses with no cash outflows are added back to net income.
TRUE
When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating gains are added to net income.
FALSE
When preparing the operating activities section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income.
FALSE
When preparing the operating activities section of the statement of cash flows using the indirect method, expenses with no cash outflows are added back to net income.
TRUE
When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating gains are added to net income.
FALSE
When preparing the operating activities section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income
FALSE
When preparing the operating activities section of the statement of cash flows using the indirect method, an increase in income taxes payable is added to net income.
TRUE
The statement of cash flows reports and proves the net change in cash for a reporting period.
TRUE
The payment of cash dividends never changes the balance of retained earnings.
FALSE
Equipment costing $100,000 with accumulated depreciation of $40,000 is sold at a loss of $10,000. This implies that $40,000 cash was received from the sale.
FALSE