Question 1

On January 1,2011,Company X had accounts receivable of $20,000.During the year,Company X sold $100,000 of merchandise to credit customers.At December 31,2011,Company X had accounts receivable of $50,000.How much cash did the company collect from credit customers during the year?
A)$130,000
B)$120,000
C)$100,000
D)$70,000

Accepted Answer

The cash collected from credit customers can be calculated by adding the beginning accounts receivable to the sales on credit and then subtracting the ending accounts receivable: $20,000 + $100,000 - $50,000 = $70,000.

Question 2

The only difference between the direct and indirect methods used for the preparation of the statement of cash flows is the way cash from operating activities is calculated.

Accepted Answer

The direct method calculates cash from operating activities by directly recording all cash inflows and outflows related to operating activities, while the indirect method starts with net income and adjusts for non-cash items and changes in current assets and liabilities to arrive at cash from operating activities.

Question 3

A company that uses the direct method will show more cash from operating activities than a company that uses the indirect method.

Accepted Answer

The method (direct or indirect) used to present cash flows from operating activities does not affect the total amount of cash reported from operating activities; it only changes the presentation format.

Question 4

Regardless of whether the statement of cash flows was prepared using the direct method or the indirect method,Proceeds from the sale of land is reported as a line item under investing activities.

Accepted Answer

Regardless of which method is used to prepare the statement of cash flows, proceeds from the sale of land are always reported as a cash inflow under investing activities.

Question 5

On January 1,2011,Company Z had accounts receivable of $5,000.During the year,Company Z sold $100,000 of merchandise to credit customers.At December 31,2011,Company Z had accounts receivable of $4,000.How much cash did the company collect from credit customers during the year?
A)$105,000
B)$101,000
C)$99,000
D)$95,000

Accepted Answer

The cash collected from credit customers can be calculated by adding the beginning accounts receivable to the sales on credit and then subtracting the ending accounts receivable: $5,000 + $100,000 - $4,000 = $101,000.

Question 6

The direct method for the preparation of the statement of cash flows ________.
A)is required by the FASB
B)is in conformity with GAAP
C)is the preferred method used by most businesses
D)is required by the IASB

Accepted Answer

The direct method for the preparation of the statement of cash flows is in conformity with GAAP. While it is not required by the FASB or IASB, it is considered the more informative method and is preferred by many businesses.

Question 7

The direct method of preparing the operating activities section of the statement of cash flows ________.
A)lists each important item of cash inflows from operating activities
B)lists each important item of cash outflows from investing activities
C)adjusts accrual-basis income
D)adjusts cash-basis income

Accepted Answer

The direct method of preparing the operating activities section of the statement of cash flows lists each important item of cash inflows from operating activities. This approach shows the actual cash flows that occurred during the period, rather than adjusting accrual-basis income or cash-basis income.

Question 8

During its first year of business,Gnu,Inc.sold $200,000 of merchandise to customers on account.At the end of the year Gnu,Inc.had accounts receivable of $40,000.How much cash did the company collect from credit customers during the year?
A)$200,000
B)$240,000
C)$160,000
D)$40,000

Accepted Answer

The company collected $160,000 from credit customers. This is calculated by subtracting the ending accounts receivable ($40,000) from the total sales on account ($200,000), indicating the amount of cash collected.

Question 9

Regardless of whether the statement of cash flows was prepared using the direct method or the indirect method,Cash collected from customers is reported as a line item under operating activities.

Accepted Answer

The direct method reports cash collected from customers as a line item under operating activities, while the indirect method does not.

Question 10

The direct method of preparing the statement of cash flows ________.
A)is preferred by business over the indirect method
B)provides greater clarity for users than the indirect method
C)reports a greater amount of cash than the indirect method
D)reports a smaller amount of cash than the indirect method

Accepted Answer

The direct method provides a more detailed and transparent view of the company's cash flows, allowing users to understand the sources and uses of cash more clearly. However, it does not necessarily report a greater or smaller amount of cash compared to the indirect method, as both methods ultimately arrive at the same net increase or decrease in cash for the period.

Question 11

Wilson Wong is reviewing his financial statements for May.His dry cleaning business had net income of $13,000 for May,but his business checking account shows a decrease of $4,500.Explain to Wilson why the net income for the business and the ending balance in cash are not the same amounts.

Accepted Answer

The answer of Wilson Wong is reviewing his financial statements...

Question 12

Delgado,Inc.wants to apply for a bank loan.It has put together a cash budget,an income statement and a balance sheet.However,the bank wants it to present a statement of cash flows in addition to the cash budget.Explain the differences between the cash budget and statement of cash flows.

Accepted Answer

The answer of Delgado,Inc.wants to apply for a bank loan.It...

Question 13

The difference between the direct and indirect methods applies only to the ________ activities section(s)of the statement of cash flows.
A)operating
B)investing and financing
C)investing
D)operating and investing

Accepted Answer

The difference between the direct and indirect methods only applies to the operating activities section of the statement of cash flows. The investing and financing sections are the same regardless of the method used.

Question 14

Which method of preparing the statement of cash flows would show increases in accounts receivable being subtracted from net income?
A)the direct method
B)the indirect method
C)accrual basis method
D)No method shows increases in accounts receivable being subtracted from net income.

Accepted Answer

The indirect method of preparing the statement of cash flows adjusts net income for changes in balance sheet accounts to convert the net income from an accrual basis to a cash basis. An increase in accounts receivable indicates that not all of the revenues included in net income were collected in cash, so this increase is subtracted to arrive at the cash provided by operating activities.

Question 15

What are the four basic financial statements,and what do they report?

Accepted Answer

The answer of What are the four basic financial statements,and...

Question 16

There are two acceptable ways to report cash from operating activities: the investment method and the finance method.

Accepted Answer

The two acceptable ways to report cash from operating activities are the direct method and the indirect method. There is no investment method or finance method.

Question 17

There are two acceptable ways to report cash from operating activities: the direct method and the indirect method.

Accepted Answer

This statement is true. Both the direct and indirect method are accepted ways of reporting cash from operating activities in a statement of cash flows.

Question 18

The following information is from Z,Inc.'s December 31,2011 annual report:  Note: Z,Inc.does not sell to its customers on account; it collects cash from its customers in advance.
Cash collected from customers on Z,Inc.'s statement of cash flows equals ________.
A)$800,000
B)$802,000
C)$798,000
D)$810,000

Accepted Answer

The answer of The following information is from Z,Inc.'s December...

Question 19

On January 1,2011,Company Z had accounts receivable of $4,000.During the year,Company Z sold $100,000 of merchandise to credit customers.At December 31,2011,Company Z had accounts receivable of $5,000.How much cash did the company collect from credit customers during the year?
A)$105,000
B)$101,000
C)$99,000
D)$95,000

Accepted Answer

The answer of On January 1,2011,Company Z had accounts receivable...

Question 20

Cash from investing activities includes all cash receipts and cash disbursements for routine sales and purchases made in the course of doing business.

Accepted Answer

The answer of Cash from investing activities includes all cash...

Quiz 9: Preparing and Analyzing the Statement of Cash Flows

On January 1,2011,Company X had accounts receivable of $20,000.During the year,Company X sold $100,000 of merchandise to credit customers.At December 31,2011,Company X had accounts receivable of $50,000.How much cash did the company collect from credit customers during the year?

The only difference between the direct and indirect methods used for the preparation of the statement of cash flows is the way cash from operating activities is calculated.

A company that uses the direct method will show more cash from operating activities than a company that uses the indirect method.

Regardless of whether the statement of cash flows was prepared using the direct method or the indirect method,Proceeds from the sale of land is reported as a line item under investing activities.

On January 1,2011,Company Z had accounts receivable of $5,000.During the year,Company Z sold $100,000 of merchandise to credit customers.At December 31,2011,Company Z had accounts receivable of $4,000.How much cash did the company collect from credit customers during the year?

The direct method for the preparation of the statement of cash flows ________.

The direct method of preparing the operating activities section of the statement of cash flows ________.

During its first year of business,Gnu,Inc.sold $200,000 of merchandise to customers on account.At the end of the year Gnu,Inc.had accounts receivable of $40,000.How much cash did the company collect from credit customers during the year?

Regardless of whether the statement of cash flows was prepared using the direct method or the indirect method,Cash collected from customers is reported as a line item under operating activities.

The direct method of preparing the statement of cash flows ________.

Wilson Wong is reviewing his financial statements for May.His dry cleaning business had net income of $13,000 for May,but his business checking account shows a decrease of $4,500.Explain to Wilson why the net income for the business and the ending balance in cash are not the same amounts.

Delgado,Inc.wants to apply for a bank loan.It has put together a cash budget,an income statement and a balance sheet.However,the bank wants it to present a statement of cash flows in addition to the cash budget.Explain the differences between the cash budget and statement of cash flows.

The difference between the direct and indirect methods applies only to the ________ activities section(s) of the statement of cash flows.

Which method of preparing the statement of cash flows would show increases in accounts receivable being subtracted from net income?

What are the four basic financial statements,and what do they report?

There are two acceptable ways to report cash from operating activities: the investment method and the finance method.

There are two acceptable ways to report cash from operating activities: the direct method and the indirect method.

The following information is from Z,Inc.'s December 31,2011 annual report: Note: Z,Inc.does not sell to its customers on account; it collects cash from its customers in advance. Cash collected from customers on Z,Inc.'s statement of cash flows equals ________.

On January 1,2011,Company Z had accounts receivable of $4,000.During the year,Company Z sold $100,000 of merchandise to credit customers.At December 31,2011,Company Z had accounts receivable of $5,000.How much cash did the company collect from credit customers during the year?

Cash from investing activities includes all cash receipts and cash disbursements for routine sales and purchases made in the course of doing business.