Question

The cash flow on total assets ratio is not affected by accounting recognition and measurement.

T/F

Because the direct method of preparing the statement of cash flows starts with net income, it is the method most frequently used.

T/F

When preparing the operating activities section of the statement of cash flows using the direct method, revenues and gains with no cash inflows are added back to net income.

T/F

Financing activities include receiving cash dividends from investments in equity securities.

T/F

When using a spreadsheet to prepare the statement of cash flows, an increase in accounts payable is entered in the Analysis of Changes columns with a debit in the statement of cash flows section and a credit in the balance sheet section.

T/F

Answer 1

Answer:

1) The cash flow on total assets ratio is not affected by accounting recognition and measurement.

True

Reason:

Cash flow on total assets is an efficiency ratio that defines actual cash flows to the company assets without being affected by income recognition or income measurements. It is used to estimate when cash will be available and how much cash will be available for future operations.

2) Because the direct method of preparing the statement of cash flows starts with net income, it is the method most frequently used.

False

Reason:

The direct method includes the cash receipts and cash payments made during the accounting period. The cash outflows are subtracted from the cash inflows to calculate the net cash flow from operating activities. On other hand, indirect method for calculating cash flow from operations uses accrual accounting information, and it always begins with the net income from the income statement.

3) When preparing the operating activities section of the statement of cash flows using the direct method, revenues and gains with no cash inflows are added back to net income.

False

Reason:

In direct method, under operating activities section company records all transactions on a cash basis and displays the information on the cash flow statement using actual cash inflows and outflows during the accounting period.

4) Financing activities include receiving cash dividends from investments in equity securities.

False

Reason:

Cash flow from Investing activities reflects a company's purchases and sales of capital assets. It reports the aggregate change in the business cash position as a result of profits and losses from investments in items like plant and equipment, Long term investments.

5) When using a spreadsheet to prepare the statement of cash flows, an increase in accounts payable is entered in the Analysis of Changes columns with a debit in the statement of cash flows section and a credit in the balance sheet section.

False

Reason:

When adjusting for changes in current assets or current liabilities in cash flow statement under indirect method such changes will reconcile the cash flows of opening balance with closing balance without any adjustments to balance sheet section.

Thank you.