Which of the following statements is false?
A. Noncash activities should be reported in accrual basis financial statements.
B. Net cash flow from operating activities relates to normal business operations.
C. Net income usually equals net cash flow from operating activities.
D. The statement of cash flows is an essential part of the basic financial statements.
Concept introduction:
Cash Flow statement:
The Cash flow statement shows the movement of cash during a particular period. The Cash flows are categorized into three categories as follows:
- Cash flows from operating activities
- Cash Flows from investing activities
- Cash flows from financing activities
To choose:
The false statement
Answer to Problem 1MC
Net income usually equals net cash flow from operating activities
Explanation of Solution
Explanation for correct answer:
Net income is never equal to the net cash flow from operating activities. Net income is calculated after considering cash as well as not cash items and no operating items, so net income can never be equal to the net cash flow from operating activities So, option C is correct.
Explanation for incorrect answers:
A. It is true that all non cash activities are reported using the accrual method of account. Hence, this option is incorrect.
B. Cash flow operating activity covers all the business operational activities. Hence, this option is incorrect.
D. There are four essential financial statements; cash flow statement is one of them. Hence, this option is incorrect.
Want to see more full solutions like this?
Chapter 16 Solutions
Principles of Accounting Volume 1
Additional Business Textbook Solutions
Principles of Management
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Principles of Accounting Volume 2
Horngren's Accounting (12th Edition)
Managerial Accounting (4th Edition)
Financial Accounting (12th Edition) (What's New in Accounting)
- Which of the following sentences regarding the statement of cash flows is false? The statement of cash flows describes the companys cash receipts and cash payments for a period of time. The statement of cash flows reconciles the beginning and ending cash balances shown on the balance sheet. The statement of cash flows reports cash flows in three categories: cash flows from business activities, cash flows from investing activities, and cash flows from financing activities. The statement of cash flows may be used by creditors to asses the creditworthiness of a company.arrow_forwardWhich of these transactions would not be part of the cash flows from the operating activities section of the statement of cash flows? A. credit purchase of inventory B. sales of product, for cash C. cash paid for purchase of equipment D. salary payments to employeesarrow_forwardWhy is using the direct method to prepare the operating section of the statement of cash flows more challenging for accountants than preparing the balance sheet, income statement, and retained earnings statement?arrow_forward
- Which of the following statements is true? Under cash-basis accounting, revenues are recorded when a company satisfies its performance obligations and expenses are recorded when incurred. Accrual-basis accounting records both cash and noncash transactions when they occur. Generally accepted accounting principles require companies to use cash-basis accounting. The key elements of accrual-basis accounting are the revenue recognition principle, the expense recognition principle, and the historical cost principle.arrow_forwardUnder the cash basis of accounting, which of the following statements is true? a. Revenue is recorded when it is earned, regardless of when the cash is received. b. Expenses are recorded when they are paid. c. Expenses are recorded when they are incurred, regardless of when the cash is paid. d. The cash basis of accounting is allowed for all corporations.arrow_forwardTrue/False The purpose of the statement of cash flows is to provide information about total revenue and expenses.arrow_forward
- Would there ever be activities that relate to operating, investing, or financing activities that would not be reported in their respective sections of the statement of cash flows? Explain. If a company had any such activities, how would they be reported in the financial statements, if at all?arrow_forwardWhich financial statement shows the financial performance of the company on a cash basis? A. balance sheet B. statement of owners equity C. statement of cash flows D. income statementarrow_forwardWhich of these transactions would be part of the financing section? A. inventory purchased for cash B. sales of product, for cash C. cash paid for purchase of equipment D. dividend payments to shareholders, paid in casharrow_forward
- In which section of the statement of cash flows would each of the following transactions be included? For each, identify the appropriate section of the statement of cash flows as operating (O), investing (I), financing (F), or none (N). (Note: some transactions might involve two sections.) A. paid advertising expense B. paid dividends to shareholders C. purchased business equipment D. sold merchandise to customers E. purchased plant assetsarrow_forwardIn which section of the statement of cash flows would each of the following transactions be included? For each, identify the appropriate section of the statement of cash flows as operating (O), investing (I), financing (F), or none (N). (Note: some transactions might involve two sections.) A. collected accounts receivable from customers B. issued common stock for cash C. declared and paid dividends D. paid accounts payable balance E. sold a long-term asset for the same amount as purchasedarrow_forwardWhich of these statements is not one of the financial statements? A. income statement B. balance sheet C. statement of cash flows D. statement of owner investmentsarrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning