Analysis Intermediate: Understanding the Statement of Cash Flow

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
The ABC Company has just bought 1 million shares of the XYZ Company. It will record this purchase as a cash outflow.
Choose wisely. There is only one correct answer.
True. Because money left ABC to pay for the securities, the purchase is a cash outflow.
2.
Why is depreciation added to net income when calculating a firms cash flow from operating activities?
Choose wisely. There is only one correct answer.
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.
3.
In which part of the statement of cash flow would you find debt issues recorded?
Choose wisely. There is only one correct answer.
Cash flows from financing activities. Debts are listed in this section.
4.
Creditors use statements of cash flow to keep track of their borrowers abilities to repay loans.
Choose wisely. There is only one correct answer.
True. These statements keep them informed about where their borrowers money is going.
5.
A firms production and sales cash flows are recorded in the _______ section of the statement of cash flow.
Choose wisely. There is only one correct answer.
Operating. The operating section includes inflows and outflows of money related to production and sales.
6.
The statement of cash flow records inflows and outflows of cash as soon as income is earned or expenses incurred.
Choose wisely. There is only one correct answer.
False. It records income and expenses regardless of when they were earned or incurred.