Question

1. Which of the following does not explain why net income from operating activities is not the same thing as net cash flow from operating activities?
   1. The income statement is prepared using an accrual method of accounting, recognizing revenues and expenses that have not yet affected cash account
   2. Sales on account are not included in cash inflows, but are included in revenues
   3. Accrued expenses are not included in cash outflows, but are included in expenses
   4. The income statement does not include payments on long term liabilities
2. Which of the following operating activities would be included in the statement of cash flows?
   1. Sales on accounts receivable
   2. Accrued wages
   3. Customer payments toward accounts receivables balance
   4. Purchase of equipment
3. All of the following are examples non-cash items reported on the income statement that would not be included in operating activities on the statement of cash flows except:
   1. Depreciation expense
   2. Amortization
   3. Sales on account-???
   4. Payments from customers toward account balances

4. All of the following accurately describe vertical analysis except:
   1. Reports a percentage of each line item on the financial statement to a base amount
   2. Compares operational results over multiple periods
   3. Provides a result comparable to industry standards
   4. Provides insight into how certain items react to, or relate to, changes in key items such as revenues or assets--???
5. All of the following would be considered investing activities except:
   1. Paying cash for a new piece of manufacturing equipment
   2. Issuance of bonds
   3. Cash received from the sale/disposal of a long term asset.
   4. Cash dividends received from stocks held in another company--???

ACCT 2020, chapter 7 Statement of cash flows, self-check, flashcards for finial exam.

Answer 1

1

d. The Income statement does not include payments on long term liabilities.

Explanation:

Since, all other options except d, explain the reason why net income from operating activities is not the same thing as net cash flow from operating activities. Only d option doesn't explain the reason.

2

c. Customer payments toward accounts receivables balance.

Explanation

As we do not include the items in cash flow statement, which do not have cash flow, also the amount invested in any fixed asset is part of cash flow from investing activities not operating activities. In this case, since there is no cash flow in either of the first two options, and in fourth options there is cash outflow but for purchase of equipment, which is part of investing activity not operating activities. That's why these would not form part of cash from Operating activities. But cash received from account is part of operating activities.

3

d. Payments from customers toward account balances.

Explanation:

Since this is not the non cash activity, therefore it should be part of cash flow from operating activities. And all other activities are non cash so those should not be included.

4

b. Compares operational results over multiple periods.

Explanation:

Since under vertical analysis each line item is listed as a percentage of a base figure within the statement, base figure in income statement is sales and in balance sheet it's assets. Vertical analysis can provide the data which can be compared with other company's data or industry data, but does not itself compares the operational results over multiple periods.

5

b. Issuance of bonds.

Explanation:

Since the cash flow from investing activities only includes the cash inflow/outflow from sale/purchase of fixed assets or investment and any income generated on those assets or investment.

Issuance of bonds is financing activity, therefore, it will not be the part of investing activities.