Cash Flow Statement Quiz
Questions: 16 · 10 minutes
1. Under the indirect method, which figure normally serves as the starting point for calculating cash flow from operating activities?
Total current assets
Ending cash balance
Gross profit
Net income
2. A company begins the year with $40,000 cash. Operating activities provide $25,000, investing activities use $18,000, and financing activities provide $8,000. What is ending cash?
$39,000
$55,000
$51,000
$47,000
3. Accounts receivable increased by $7,000 during the period. All else equal, what adjustment is made under the indirect method?
Add $7,000 because reported sales increased
Make no adjustment because receivables are current assets
Subtract $7,000 because recognized revenue exceeded cash collected from customers by that amount
Report $7,000 as an investing cash outflow
4. A business sells equipment for $30,000 cash. Where is the $30,000 proceeds amount generally reported?
Only as a noncash disclosure
As an operating cash inflow
As a financing cash inflow
As an investing cash inflow
5. Equipment is sold at a gain. Under the indirect method, how is the gain generally handled when reconciling net income to operating cash flow?
The gain is added to net income because it increased profit
The gain replaces the full sale proceeds in investing activities
The gain is reported as a financing cash inflow
The gain is deducted from net income because the sale proceeds belong in investing activities
6. A company reports $12,000 of depreciation expense. Under the indirect method, how is this expense treated in the operating section?
It is deducted from net income because the asset lost value
It is added back to net income because it did not use cash in the current period
It is reported as an investing cash outflow
It is reported as a financing cash inflow
7. A retailer receives cash from a customer for merchandise sold during its normal business operations. In which section is the receipt generally reported?
Operating activities
Investing activities
Financing activities
Significant noncash activities
8. A manufacturer pays cash to purchase production equipment. How is the payment generally classified?
As an operating cash outflow
As a financing cash outflow
As an investing cash outflow
As a noncash disclosure only
9. A company acquires equipment by signing a long-term note and pays no cash at acquisition. How is the transaction generally presented in cash flow reporting?
As an operating cash outflow
As both an investing outflow and a financing inflow in the main statement
It is omitted from all financial statement disclosures until cash is paid
It is excluded from the main cash totals and disclosed as a significant noncash investing and financing activity
10. Which presentation is characteristic of the direct method for reporting operating cash flows?
Beginning with net income and adjusting for noncash items and working-capital changes
Combining all cash receipts and payments into a single net change without categories
Listing major classes of operating cash receipts and operating cash payments
Reporting only investing and financing transactions that affected cash
11. A corporation receives cash by issuing new shares of common stock. Where is the receipt generally reported?
Financing activities
Investing activities
A reconciliation adjustment outside all three sections
Operating activities
12. Accounts payable increased by $5,000 during the period. All else equal, how does this affect the indirect-method operating section?
Subtract $5,000 because the liability increased
Add $5,000 because recognized expenses exceeded cash paid to suppliers by that amount
Make no adjustment until the payable is settled
Report a $5,000 financing inflow
13. A company pays cash to reduce the principal balance of a long-term bank loan. How is the principal payment generally classified?
As an investing cash outflow
As an operating cash inflow
As a financing cash outflow
As a noncash financing activity
14. Which statement best distinguishes the statement of cash flows from the income statement?
The cash flow statement tracks cash movements, while the income statement includes revenues and expenses recognized under accrual accounting
The cash flow statement measures profitability without considering cash timing
The cash flow statement reports only transactions involving long-term assets
The cash flow statement lists financial position at one specific date
15. A company reports operating cash flow of negative $10,000, investing cash flow of negative $5,000, and financing cash flow of positive $20,000. Which conclusion is directly supported?
Operations consumed $10,000 of cash while financing activities supplied $20,000
The company earned a $5,000 net profit
The company collected more cash from customers than it paid for operations
The company had no debt or equity transactions during the period
16. What is the primary purpose of a statement of cash flows?
To measure revenue earned and expenses incurred during the period
To explain changes in cash and cash equivalents through operating, investing, and financing activities
To list the company’s assets, liabilities, and equity at a single date
To calculate changes in retained earnings from dividends and profit