Question

correct answer

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 11) Which of the following is TRUE of the statement of cash flows? A) The statement of cash flows reports why cash increased or decreased during the period. B) The statement of cash flows covers a span of time and is dated "Year Ended Month Day, Year C) The statement of cash flows show's where cash came from and how cash was spent. D) All of the above are true of the statement of cash flows. 12) 12) Which of the following financial statements reports an entity's cash receipts and cash payments during the period? A) The balance sheet reports an entity's cash receipts and cash payments during the period B) The statement of retained earnings reports an entity's cash receipts and cash payments during the period C) The income statement reports an entity's cash receipts and cash payments during the period. D) The statement of cash flows reports an entity's cash receipts and cash payments during the period. 13) 13) Which of the following are created by operating activities? A) Revenues and expenses are created by operating activities B) An increase in common stock is created by operating activities. C) An increase in long-term debt is created by operating activities. D) Both A and B are created by operating activities. 14) 14) Which of the following statements about the information included on a statement of cash flows is TRUE? A) The statement of cash flows contains information about the business's ability to generate positive cash flows in future periods. B) The statement of cash flows contains information about stock splits and stock dividends! distributed by the company. C) The statement of cash flows contains information about the business's percentage change in each item of revenue and expense. D) The statement of cash flows contains information about the differences between net income and additions to retained earnings

Answer 1

11) D

12) D

13) D

14) C

Explanation

11) The Cash flow statement indicates the reasons and the amount of increase and decrease of cash whether it is due to operating, financing, investing etc. It is generally prepared for the period and not as on date like the balance sheet. It also indicates how cash was received and how it is spent. From the definition of the cash flow statement it is clearly evident that all the above statements are right.

12) The balance sheet reflects the companies state of affairs as on a date while a profit and loss account reflects the revenues and expenses for a period and it considers income for which cash is not received also in accrual basis of accounting. The statement of retained earnings reflects the profits earned by the company over the period to invest further or to distribute in any manner to the shareholders. Hence the cashflow statement reflects the entity cash receipts and payments made during the year is correct

13) As a part of operating activity, revenues and expenses are created. Company operates its business due to which revenue is generated and expenditure is incurred. An increase in stock is an operating decision and happens due additional manufacturing or additional purchase. Hence it is an operating activity. But Increase in long term debt is purely a financing activity since it is not a part of regular operating activities and happens to facilitate operating activities. Hence only A and B are right statements.

14) The statement of cashflow reflects the current periods cash out flows and inflows but it does not reflect the ability of the company to generate future cashflows.Information on the stock splits and stock dividend will not be available in cashflow statement. The same will be available in Balance sheet notes to account. Cash flow statement reflects the current year and previous year revenues and expenses which helps to compare the change of percentages but it does not anywhere specify the information about difference of net income and additions to retained earnings.