Question 1

In applying the direct method,depreciation expense is ________.

Accepted Answer

Depreciation expense is a non-cash expense and does not affect cash flow, so it is not shown on the statement of cash flows when using the direct method. The direct method focuses on the actual cash inflows and outflows from operating activities, excluding non-cash items like depreciation.

Question 2

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

Accepted Answer

The indirect method is preferred by businesses over the direct method because it is easier to prepare, using information readily available from the accrual-based financial statements. It starts with net income and adjusts for non-cash transactions and changes in working capital to arrive at cash flow from operating activities.

Question 3

The preparation of the statement of cash flows using the indirect method involves the conversion from the accrual basis to the cash basis.

Accepted Answer

The indirect method for preparing the statement of cash flows starts with net income from the accrual basis income statement and then makes adjustments to convert it to the cash basis. This process involves analyzing changes in current assets and liabilities to determine the actual cash inflows and outflows during a period.

Question 4

Team Shirts,Inc.had $12,000 of insurance expense and $1,000 of prepaid insurance at the end of the year.The cash paid for insurance was $12,800.Calculate the amount of prepaid insurance at the beginning of the year.

Accepted Answer

The answer of Team Shirts,Inc.had $12,000 of insurance expense and...

Question 5

The statement of cash flows is designed to ________.

Accepted Answer

The statement of cash flows is designed to reconcile the differences between the beginning and ending balances in the cash account by detailing the cash inflows and outflows from operating, investing, and financing activities.

Question 6

In applying the indirect method,depreciation expense is ________.

Accepted Answer

Depreciation expense is added back to net income in the cash flow statement when using the indirect method because it is a non-cash expense that had reduced net income.

Question 7

Team Shirts,Inc.recognized $8,144 of supplies expense for the year.At the beginning of the year,the balance in Supplies was $1,625.At the end of the year,the balance was $2,035.All supplies have been paid for in cash.How is the accounting information for these items reported on the statement of cash flows using the direct method?

Accepted Answer

The answer of Team Shirts,Inc.recognized $8,144 of supplies expense for...

Question 8

To prepare the statement of cash flows using the indirect method,interest income is ________.

Accepted Answer

Interest income is already included in the calculation of net income, so when using the indirect method to prepare the statement of cash flows, it is not separately added or subtracted because the starting point is the net income figure.

Question 9

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

Accepted Answer

The direct method involves converting each line item of the income statement to its cash equivalent, showing actual cash receipts and payments.

Question 10

To prepare the statement of cash flows using the indirect method,dividends paid are ________.

Accepted Answer

Dividends paid are considered a financing activity and should be included in the financing section of the statement of cash flows using the indirect method. They are not added or subtracted from net income, as they are not reflected in the income statement.

Question 11

The indirect method for the preparation of the statement of cash flows starts ________.

Accepted Answer

The indirect method for the preparation of the statement of cash flows starts with net income and makes adjustments for all the items that are not cash, such as depreciation and changes in current assets and liabilities.

Question 12

The indirect method is ________.

Accepted Answer

The indirect method is considered easier to prepare than the direct method because it starts with net income and makes adjustments to convert it to cash flow from operating activities.

Question 13

To prepare the statement of cash flows using the indirect method ________ net income.

Accepted Answer

In the indirect method of preparing the statement of cash flows, a decrease in accounts payable indicates that a company has paid off some of its liabilities, which means cash has been used. Therefore, it is subtracted from net income to adjust for the fact that this decrease does not affect net income but does reduce cash.

Question 14

Team Shirts,Inc.had $80,000 of salaries expense and $10,000 of salary payable at the beginning of the year.The cash paid for salaries was $78,000.Calculate the amount of salary payable at the end of the year.

Accepted Answer

The answer of Team Shirts,Inc.had $80,000 of salaries expense and...

Question 15

The FASB requires that a company using the direct method must provide a reconciliation between net income and cash from operating activities.

Accepted Answer

This is true. The FASB requires that companies using the direct method for reporting cash flows from operating activities must also provide a reconciliation of net income to cash provided or used by operating activities. This reconciliation typically shows the adjustments made to net income to arrive at the cash flow from operating activities.

Question 16

To prepare the statement of cash flows using the indirect method ________.

Accepted Answer

Depreciation expense is added back to net income in the indirect method of preparing the statement of cash flows because it is a non-cash expense that reduced net income but did not involve an outflow of cash.

Question 17

Depreciation expense,using the indirect method of preparing the statement of cash flows,is ________.

Accepted Answer

Depreciation expense is a non-cash expense that reduces net income on the income statement. When preparing the statement of cash flows using the indirect method, depreciation expense is added back to net income to adjust for the fact that it did not involve an actual outflow of cash during the period.

Question 18

Team Shirts,Inc.recognized $8,144 of supplies expense for the year.At the beginning of the year,the balance in Supplies was $1,625.At the end of the year,the balance was $2,035.All supplies have been paid for in cash.How is the accounting information for these items reported on the statement of cash flows using the indirect method?

Accepted Answer

The answer of Team Shirts,Inc.recognized $8,144 of supplies expense for...

Question 19

Team Shirts,Inc.recognized $4,690 of insurance expense for the year.At the beginning of the year,the balance in Prepaid insurance was $400.At the end of the year,the balance was $775.How is the accounting information for these items reported on the statement of cash flows using the INDIRECT method?

Accepted Answer

The answer of Team Shirts,Inc.recognized $4,690 of insurance expense for...

Question 20

The FASB requires that a company using the indirect method must provide a reconciliation between net income and cash from operating activities.

Accepted Answer

The answer of The FASB requires that a company using...

Quiz 9: Preparing and Analyzing the Statement of Cash Flows

In applying the direct method,depreciation expense is ________.

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

The preparation of the statement of cash flows using the indirect method involves the conversion from the accrual basis to the cash basis.

Team Shirts,Inc.had $12,000 of insurance expense and $1,000 of prepaid insurance at the end of the year.The cash paid for insurance was $12,800.Calculate the amount of prepaid insurance at the beginning of the year.

The statement of cash flows is designed to ________.

In applying the indirect method,depreciation expense is ________.

To prepare the statement of cash flows using the indirect method,interest income is ________.

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

To prepare the statement of cash flows using the indirect method,dividends paid are ________.

The indirect method for the preparation of the statement of cash flows starts ________.

The indirect method is ________.

To prepare the statement of cash flows using the indirect method ________ net income.

Team Shirts,Inc.had $80,000 of salaries expense and $10,000 of salary payable at the beginning of the year.The cash paid for salaries was $78,000.Calculate the amount of salary payable at the end of the year.

The FASB requires that a company using the direct method must provide a reconciliation between net income and cash from operating activities.

To prepare the statement of cash flows using the indirect method ________.

Depreciation expense,using the indirect method of preparing the statement of cash flows,is ________.

Team Shirts,Inc.recognized $4,690 of insurance expense for the year.At the beginning of the year,the balance in Prepaid insurance was $400.At the end of the year,the balance was $775.How is the accounting information for these items reported on the statement of cash flows using the INDIRECT method?

The FASB requires that a company using the indirect method must provide a reconciliation between net income and cash from operating activities.