Lesson 24

Question 1

What is the purpose of the statement of cash flows?

Answer 1

It is to provide information about a company’s cash receipts and cash payments during a period, and also to provide cash basis information about the company’s operating, investing, and financing activities .

Question 2

The statement of cash flows help investors (and etc) to asses what information?

Answer 2

1. The entity’s ability to generate future cash flows
2. The entity’s ability to pay dividends and meet obligations.
3. The reasons for the difference between net income and net cash flow from operating activities.
4. The cash and non cash investing and financing transactions during the period.

Question 3

What are investing activities?

Answer 3

They generally involve long term assets and include (1) making and collecting loans, and (2) acquiring and disposing of investments and productive long lived assets.

Question 4

What are financing activities?

Answer 4

They involve liability and stockholder’s equity items and include (1) obtaining cash from creditors and repaying the amounts borrowed, and (2) obtaining capital from owners and providing them with a return on, and a return of their investment.

Question 5

What are operating activities?

Answer 5

They involve the cash effects of transactions that enter into the determination of net income, such as cash receipts from sales of goods and services, and cash payments to suppliers and employees for acquisitions of inventory and expenses.

Question 6

Diagram of the 3 activities.

Answer 6

Question 7

What are the 3 general guidelines about the classification of cash flows?

Answer 7

1. Operating activities involve the income statement items.
2. Investing activities involve cash flows resulting from changes in investments and long term asset items.
3. Financing activities involve cash flows resulting from changes in long term liability and stockholders’ equity items.

Question 8

What best describes the primary purpose of the information provided by the statement of cash flows?q

Answer 8

To provide information about the cash receipts and cash payments of an entity during a period

Question 9

Which classification of activities involves the cash effects of transactions that enter into the determination of net income?

Answer 9

Operating activities

Operating activities involve the cash effects of transactions that enter into the determination of net income, such as cash receipts from sales of goods and services, and cash payments to suppliers and employees for acquisitions of inventory and expenses.