1) The category that is generally considered to be the best measure of a company’s ability to continue as a going concern is a) cash flows provided (used) by operating activities. b) usually different from year to year. c) cash flows provided (used) by investing activities. d) cash flows provided (used) by financing activities. 2) Using the indirect method, which of the following would be added to net income? a) depreciation expense b) increase in prepaid expenses c) decrease in accounts payable d) increase in accounts receivable 3) In preparing a statement of cash flows, the conversion of bonds into common shares will be reported in the a) investing activities section. b) shareholders' equity section. c) financing activities section. d) notes to the financial statements.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
1) The category that is generally considered to be the best measure of a company’s ability to continue as a going concern is
a) cash flows provided (used) by operating activities.
b) usually different from year to year.
c) cash flows provided (used) by investing activities.
d) cash flows provided (used) by financing activities.
2) Using the indirect method, which of the following would be added to net income?
a)
b) increase in prepaid expenses
c) decrease in accounts payable
d) increase in
3) In preparing a statement of cash flows, the conversion of bonds into common shares will be reported in the
a) investing activities section.
b) shareholders' equity section.
c) financing activities section.
d) notes to the financial statements.
4) Net income reported for the current year was $208000. Depreciation expense was $34400. During the year, Accounts Receivable and Inventory increased $18700 and $25600, respectively. Prepaid Expenses and Accounts Payable decreased $4600 and $9000, respectively. There was also a loss on the sale of equipment of $6700. Using the indirect method, how much cash was provided by operating activities?
a) $251400
b) $219300
c) $189100
d) $200400
5)
a) helps creditors and investors understand how much discretionary cash flow a company has left from its operating activities.
b) is calculated as cash provided (used) by operating activities plus net capital expenditures and dividends paid.
c) is not a solvency-based measure that helps creditors and investors understand how much discretionary cash flow a company has left from operating activities.
d) helps to understand how much discretionary cash flow a company has left from its operating activities that can be used to expand operations, increase debt, or pay additional dividends.
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