Assume a company prepares the statement of cash flows using the indirect method. The company purchases its inventory on credit from suppliers. How should a decrease in accounts payable be reflected in the section that reconciles net income to cash flow from operating activities? Multiple Choice It would be added if the section starts with net income and subtracted if it starts with a net loss It would be added in reconciling net income to cash flow from operating activities It would be subtracted in reconciling net income to cash flow from operating activities A change in accounts payable does not affect the reconciliation of net income to cash flow from operating activities

Assume a company prepares the statement of cash flows using the indirect method. The company purchases its inventory on credit from suppliers. How should a decrease in accounts payable be reflected in the section that reconciles net income to cash flow from operating activities? Multiple Choice It would be added if the section starts with net income and subtracted if it starts with a net loss It would be added in reconciling net income to cash flow from operating activities It would be subtracted in reconciling net income to cash flow from operating activities A change in accounts payable does not affect the reconciliation of net income to cash flow from operating activities

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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To prepare the statement of cash flows using the indirect method: Group of answer choices A)A decrease in inventory is added to net income. B)A purchase of a machine is subtracted from net income. c)Cash paid for dividends is added to net income. d)A decrease in accounts payable is added to net income. e)None of the above
Select the item that matches with the description. Descriptions a. Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows. b. Item included in net income, but excluded from net operating cash flows. c. Net cash flows from operating activities divided by average total assets. d. Cash transactions involving lenders and investors. e. Cash transactions involving net income. f. Cash transactions for the purchase and sale of long-term assets. g. Purchase of long-term assets by issuing stock to seller. h. Shows the cash inflows and outflows from operations such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes. Terms
preparing an indirect method statement of cash flows, an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because O a. cash was increased while cost of goods sold was decrease O b. cost of goods sold on an accrual basis is lower than on a cash basis. O c. inventory purchased during the period was less than inventory sold resulting in a net cash increase. d. O d. acquisition of inventory is an investment activity.
The statement of cash flows is normally a required basic financial statement for each period for which an earnings statement is presented. The statement should include a separate schedule listing the financing and investing activities not involving cash. Required: What are financing and investing activities not involving cash? What are two types of financing and investing activities not involving cash? Explain what effect, if any, each of the following seven items would have on the statement of cash flows. accounts receivable inventory depreciation deferred tax liability issuance of long-term debt in payment for a building payoff of current portion of debt sale of a fixed asset resulting in a loss or gain
Which of the following statements about the direct and indirect methods for presenting Cash Flow Statement is NOT true? According to the indirect method, cash flows begin with net income or loss and is followed by subsequent additions to or deductions from that amount for non-cash revenue and expense items, resulting in cash flow from operating activities. The direct method is based on use of actual cash inflows and outflows from a company’s operations. Using direct and indirect methods leads to different amounts shown as cash flow from operations, investing, and financing activities. The cash flow statement, income statement and balance sheet are interconnected: the cash flow amount is equal to the corresponding income statement amount plus or minus the change in the related balance sheet account.
The following schedule relates the income statement with cash flows from operating activities, derived by both the direct and indirect methods. Some elements necessary to complete the schedule are missing. Required: Complete the schedule by determining each of the following missing elements: (Amounts to be deducted should be indicated with a minus sign.) Income Statement Sales Gain on sale of equipment Cost of goods sold Salaries expense Depreciation expense Interest expense Insurance expense Loss on sale of land Income tax expense Net Income Cash flows from Operating Activities Indirect Method Net income Adjustments: $432 Decrease in accounts receivable 36 Gain on sale of equipment Increase in inventory Increase in accounts payable (66) (21) Depreciation expense Decrease in bond discount (45) Decrease in prepaid insurance (18) Loss on sale of land (51) Increase in income tax payable Net cash flows from operating activities Direct Method 18 Cash received from customers (36) (Not…
Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method? a.a gain on the sale of land b.an increase in accrued expenses c.a decrease in accounts payable d.dividends paid on common stock Which of the following would not be on the statement of cash flows? a.cash flows from investing activities b.cash flows from operating activities c.cash flows from contingent activities d.cash flows from financing activities
Which of the following should be added to net income in calculating net cash flow from operating activities using the INDIRECT method? A. A decrease in accounts payable. B. A decrease in accounts receivable. C. Preferred dividends declared and paid. D. An increase in inventory.
The method of presenting cash flow from operations where net income is adjusted for items without any cash effect is called a. direct method b. indirect method c. allowance method d. reconciliation method
When using the indirect method of preparing the statement of cash flows, the starting pointto determine net cash provided by operating activities isa. sales.b. net income.c. the beginning cash balance.d. the ending cash balance.
Indicate the section where transactions would appear on the statement of cash flows.O. Cash flows from operating activity F. Cash flows from financing activityI. Cash flows from investing activity Cash paid on account payable to supplier
Items that are added back to net income in determining cash provided by operating activities under the indirect method, do not include: Group of answer choices an increase in inventory loss on sale of equipment depreciation expense an increase in accounts payable