Title: Statement of Cash Flows
Course: Question Banks

Q: Cash in a checking account is called:
- Cash
- A non-cash activity
- A cash equivalent
A: A cash equivalent

Q: Short-term assets on the balance sheet include:
- Accounts payable
- Accumulated depreciation.
- Cash and cash equivalents
A: Cash and cash equivalents

Q: By putting our cash into savings or money market accounts we can:
- Tie up our money so we don’t spend it unnecessarily.
- Move it from short-term to long-term assets on the balance sheet.
- Earn interest on our money, but still keep it liquid in case we need to use it.
A: Earn interest on our money, but still keep it liquid in case we need to use it.

Q: Outflows in the operating activities section of the cash flow statement may include:
- Paying dividends to your shareholders.
- Buying a new vehicle.
- Paying payroll and your everyday bills (accounts payable).
A: Paying payroll and your everyday bills (accounts payable).

Q: The indirect method of cash flow statement preparation starts:
- The accrual based income statement and adds back to get to the cash basis.
- The cash basis income statement.
- With net income, and adds or subtracts items based on balance changes.
A: With net income, and adds or subtracts items based on balance changes.

Q: We sold our old dump truck for cash and purchased a new one, taking out a loan. We will report this on:
- The operating activities section, since it involves cash.
- The financing section only since we took out a loan on the new truck.
- The investing and financing sections of our cash flow statement.
A: The investing and financing sections of our cash flow statement.

Q: We just purchased a new printer for the office, and paid cash. This purchase will affect:
- Both the financing and investing section of our cash flow statement.
- The operating section of our cash flow statement.
- Just the investing section of our cash flow statement.
A: Just the investing section of our cash flow statement.

Q: You borrowed money from the bank to purchase a new building. The purchase of the building will show on:
- The building and loan will show on the investing activities.
- The building and loan will show on the financing activities.
- The building will show on the investing activities, while the loan will show on the financing activities.
A: The building will show on the investing activities, while the loan will show on the financing activities.

Q: Your company recently took out a loan and bought a new press for your print shop. This transaction would be shown on:
- Just the financing activities of the cash flow statement.
- The investing and operating sections of the cash flow statement.
- Both the financing and investing activities of the cash flow statement.
A: Both the financing and investing activities of the cash flow statement.

Q: ABC Company sold a piece of equipment that they still had a loan on. They sold it for cash and paid off the loan on the equipment. This transaction would be reflected on:
- Just the investing activities of the cash flow statement.
- Just the financing activities of the cash flow statement.
- Both the investing and financing activities of the cash flow statement.
A: Both the investing and financing activities of the cash flow statement.

Q: Your company borrowed $100,000 from the bank a few years ago to purchase several pieces of equipment. You just made the last payment on the loan, and all of the equipment is still being used. This will be recorded on the cash flow statement in:
- Both the financing and investing sections.
- Both the financing and operation sections.
- The financing activities section.
A: The financing activities section.

Q: Our accounts payable balance decreased by $5,000 this month from last month. On our cash flow statement we will need to:
- Add to cash
- This will have no effect on cash.
- Subtract from cash
A: Subtract from cash

Q: Our payroll expenses for last month were $4,590. This expense would be:
- An outflow that would increase cash
- An inflow that would increase cash.
- An outflow that would reduce cash.
A: An outflow that would reduce cash.

Q: Our accounts receivable balance increased by $2,500 and our accounts payables balance increased by $1,000. The net effect on our cash balance would be:
- $1,500 increase in cash.
- $3,500 increase in cash
- $1,500 decrease in cash.
A: $1,500 decrease in cash.

Q: Sales went from $50,000 to $70,000 last month, but your boss has concerns about the lack of cash in your checking account. How could you explain this cash flow issue using the direct method?
- Even though our sales was up by $20,000, since the customers are delinquent on their payments we are going to have cash flow problems. It is the accounts receivable department not doing their job.
- We had lots of expenses this month with the higher sales, so we had to borrow money. I will have accounts payable hold some payments until we receive more cash.
- Even though our sales was up by $20,000, that is on the accrual basis. Since our customers have net 30 day terms, we only received payment for those sales from the prior month. Our cash flow should catch up once we get payment from those customers.
A: Even though our sales was up by $20,000, that is on the accrual basis. Since our customers have net 30 day terms, we only received payment for those sales from the prior month. Our cash flow should catch up once we get payment from those customers.

Q: By looking at how much we received in cash and paid in cash rather than the accrual based income statement we are:
- Looking at the changes in accounts receivable and accounts payable to determine our cash basis income statement amounts.
- Finding out a way to rationalize cash flow problems.
- Building our cash flow statement using the direct method by starting at the income statement level and rebuilding it on the cash basis.
A: Building our cash flow statement using the direct method by starting at the income statement level and rebuilding it on the cash basis.

Q: You have been provided with the following information: Cash paid by customers: $20,000, Cash spent on bills/expenses and payroll $12,500, cash received on sale of pick up truck $5,000. What is the net change in cash for the period?
- Net increase in cash of $7,500
- Net decrease in cash of $2,500
- Net increase in cash of $12,500
A: Net increase in cash of $12,500

Q: Your company purchased a new press for $25,000 and sold the old press for $10,000. The proper recording of this transaction on your statement of cash flows would be:
- Net the two transactions to $15,000 net reduction in cash.
- Net the two transactions to $15,000 net increase in cash.
- Record each transaction separately to meet GAAP standards.
A: Record each transaction separately to meet GAAP standards.

Q: Depreciation is added back when preparing the cash flow statement because:
- Depreciation doesn’t show on the balance sheet
- Depreciation doesn’t change from period to period.
- Depreciation is a non-cash expense.
A: Depreciation is a non-cash expense.

Q: Inventory has gone up by $10,000 and payroll tax liabilities has an increase of $5,000. What is the net change in cash?
- An increase of $5,000
- An increase of $15,000
- A decrease of $5,000
A: A decrease of $5,000

Q: You are seeing a clear cash collection problem and are not sure where to start! What might be a good first step in collecting your accounts receivable?
- Don’t offer terms, don’t accept credit cards. Just do all transactions in cash.
- Call customers each day after the invoice sent to ask for payment.
- Make sure you have a clear customer acquisition plan that includes credit checks and even cash payment until their applications are processed. Taking credit cards is another good option to collect faster.
A: Make sure you have a clear customer acquisition plan that includes credit checks and even cash payment until their applications are processed. Taking credit cards is another good option to collect faster.

Q: The need for a working capital line of credit may arise due to:
- When your costs are more than your sales, creating a loss for your company.
- When sales dip and you are unable to meet your loan payment due dates.
- A forecast that shows periods of cash flow situations where sales may be high, but collections will take time.
A: A forecast that shows periods of cash flow situations where sales may be high, but collections will take time.

Q: The cash flow statement is one way to evaluate how a business is doing. Managers also need to evaluate:
- The balance sheet so they know how much cash they have to work with and how much debt they owe.
- The income statement, as keeping sales high and expenses low is the main goal of a business.
- The balance sheet and income statement to gain enough information to make valid business decisions.
A: The balance sheet and income statement to gain enough information to make valid business decisions.