Analysis Intermediate: Understanding the Statement of Cash Flow

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1.
The ABC Company has just bought 1 million shares of the XYZ Company. It will record this purchase as a cash outflow.
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True. Because money left ABC to pay for the securities, the purchase is a cash outflow.
2.
The statement of cash flow records inflows and outflows of cash as soon as income is earned or expenses incurred.
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False. It records income and expenses regardless of when they were earned or incurred.
3.
In a statement of cash flow, accounts receivable are listed in the section on cash flows from operating activities.
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True. Accounts receivable are operating activities.
4.
Why is depreciation added to net income when calculating a firms cash flow from operating activities?
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Cash is not paid out for it. Because the statement of cash flow records inflows and outflows of cash, depreciation must be added to net income, since it cannot be subtracted from it.
5.
Which of the following is not included in the statement of cash flow?
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Managing activities. The statement of cash flow does not include this.
6.
A firms production and sales cash flows are recorded in the _______ section of the statement of cash flow.
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Operating. The operating section includes inflows and outflows of money related to production and sales.