Ch 16 - Cash Flow Statement
The method you can use to double check whether your final answer for a cash flow statement is correct (Net increase/decrease in cash line):
What is checking the change in cash from prior year to current year on the balance sheet and comparing it to the net increase/decrease in cash line?
Accounts Receivable Turnover = Net Sales / Average Accounts Receivable
Z Company reports Net Sales of $1,000,000, A/R for 2025 of $200,000 and for 2024 of $300,000, and Net Income of $50,000. What is its Accounts Receivable Turnover?
What is 4 times?
1,000,000 / ((200,000+300,000)/2) = 4
Assume you are creating a direct materials budget for the month of July. Budgeted sales for July are 700 units. Each unit requires 6 pounds of direct materials.
What is the materials needed for production in lbs? (You do not need to worry about ending inventory at this step)
What is 4,200 lbs?
700 * 6 = 4,200
The statement of cash flows reports:
a. Assets, liabilities, and equity.
b. Revenues, gains, expenses, and losses.
c. Cash receipts (inflows) and cash payments (outflows) for an accounting period
d. Equity, net income, and dividends
e. Changes in equity
What is c:
Cash receipts (inflows) and cash payments (outflows) for an accounting period
The indirect method for the preparation of the statement of cash flows:
a. Separately lists each major item of operating cash receipts.
b. Separately lists each major item of operating cash payments.
c. Reports net income and then adjusts it for items that do not affect cash.
d. Is required if the company is a merchandiser.
e. Results in a different net cash amount provided by operating activities than the direct method.
What is c:
Reports net income and then adjusts it for items that do not affect cash.
The items that go into the investing activities section of a cash flow statement.
What is:
) Cash receipts from sale of long-term assets/PPE
) Acquisition of long-term assets/PPE using cash
Profit Margin = Net Income / Net Sales
Company Y reports Net Sales of $800,000, Net Income of $120,000, and Total Assets of $9,000,000. What is their profit margin?
What is 15%?
120,000/800,000 = .15
Assume you are creating a selling expense budget for the month of December. Budgeted sales for December are $400,000. Sales commissions of 3% of sales are paid entirely in the month of sales. The sales manager's monthly salary is $12,000.
Calculate the total selling expenses for the month of December.
What is $24,000?
(400,000 * .03) + 12,000 = 24,000
Financial statements with data for two or more successive accounting periods placed in columns side by side, sometimes with changes shown in both dollar amounts and percentages, are referred to as:
a. Period-to-period statements.
b. Controlling statements.
c. Successive statements.
d. Comparative statements.
e. Serial statements.
What is d:
Comparative statements
The appropriate section in the statement of cash flows for reporting the purchase of land in exchange for common stock is:
a. Operating activities
b. Financing activities
c. Investing activities
d. In a note to the statement or in a separate schedule
e. Reconciliation of cash balance
What is d:
In a note to the statement or in a separate schedule
The items that go into the financing activities section of the cash flow statement:
What is:
) + Cash receipts from issuance of stock
) + Cash receipts from sale of treasury stock
) + Cash receipts from issuance of notes/bonds payable
) - Purchase of treasury stock
) - Payment of notes or bonds payable
) - Payment of dividends
Complete a vertical analysis for the following information:
Net Sales $100,000
Cost of Goods Sold $75,000
Gross Profit $25,000
Operating Expense $20,000
Net Income $5,000
What is:
Net Sales 100%
Cost of Goods Sold 75%
Gross Profit 25%
Operating Expense 20%
Net Income 5%
Assume you are creating a cash payment schedule for the months of January, February, and March. Purchases for each month are $50,000, $60,000, and $70,000 respectively. 25% of purchases are paid in the month of purchase and 75% of purchases are paid in the following month.
What are the total budgeted cash payments for February?
What is $52,500?
($60,000 * .25) + ($50,000 * .75) = 52,500
Intracompany standards for financial statement analysis:
a. Are based on a company's prior performance and its relations between financial items.
b. Are often set by competitors.
c. Are set by the company's industry through published statistics.
d. Are based on rules of thumb.
e. Are published by analyst services such as Standard & Poor’s.
What is a:
Are based on a company's prior performance and its relations between financial items.
Which of the following is not a purpose of financial statement analysis:
a. Providing information to improve efficiency and effectiveness.
b. Providing information for managing and operating the company.
c. Helping external users make investing and lending decisions.
d. Helping the board of directors monitor management’s performance.
e. Assuring that the company will avoid an IRS audit.
What is e:
Assuring that the company will avoid an IRS audit.
The items that go into the operating activities section of a cash flow statement.
What is:
) Net Income
) + Depreciation
) + Losses/- Gains
) Opposite sign of changes in current assets
) Same sign of changes in current liabilities
Complete a vertical analysis for the following information:
Cash $40,000
A/R $65,000
Inventory $20,000
Equipment $75,000
Total Assets $200,000
What is:
Cash 20%
A/R 32.5%
Inventory 10%
Equipment 37.5%
Total Assets 100%
Assume you are creating a direct materials budget for the month of September. You've calculated that your materials required for production is 7,000 lbs, your desired ending inventory is 4,500 lbs, and your beginning inventory is 2,700 lbs.
Calculate your materials to be purchased in lbs.
What is 8,800 lbs?
7,000 + 4,500 - 2,700 = 8,800
Preparation of the statement of cash flows does not involve:
a. Computing the net increase or decrease in cash.
b. Computing and reporting net cash provided or used by operations
c. Computing the profit compared to the net increase or decrease in cash
d. Computing and reporting net cash provided or used by financing activities
e. Computing and reporting net cash provided or used by investing activities.
What is c:
Computing the profit compared to the net increase or decrease in cash
The first step in preparing the master budget is a plan showing the planned sales units and the budgeted dollars from the sales. This plan is called the:
a. Operating budget
b. Business plan
c. Income statement budget
d. Merchandise purchases budget
e. Sales budget
What is e:
Sales budget
Using the following comparative balance sheet info, complete the "Changes in current operating assets and liabilities" section of operating activites:
Cash: 2025: 60,000 | 2024: 40,000A/R: 2025: 75,000 | 2024: 55,000
Inventory: 2025: 30,000 | 2024: 45,000
Equipment: 2025: 120,000 | 2024: 120,000
A/P: 2025: 40,000 | 2024: 32,000
What is:
Increase in A/R: ($20,000)
Decrease in Inventory: $15,000
Increase in A/P: $8,000
Complete a horizontal analysis from the following information:
Net Sales: 2025: 100,000 | 2024:120,000
Cost of Goods Sold: 2025: 75,000 | 2024: 70,000
Gross Profit: 2025: 25,000 | 2024: 50,000
Operating Expense: 2025: 20,000 | 2024: 10,000
Net Income: 2025: 5,000 | 2024: 40,000
What is:
Net Sales Change: ($20,000); (16.67%)
COGS Change: $5,000; 7.14%
Gross Profit Change: ($25,000); (50%)
Operating Expense Change: $10,000; 100%
Net Income Change: ($35,000); (87.5%)
Assume you are creating a direct materials budget for the month of December. Budgeted production units for January are 800. Each unit requires 5 pounds of materials. Company policy calls for ending inventory to equal 35% of next month's requirements.
What is the budgeted ending inventory for December in lbs?
What is 1400 lbs?
(800 * 5) * 35% = 1400
The practice of continually revising budgets as time passes is called:
a. Participatory budgeting.
b. Capital budgeting.
c. Balanced budgeting.
d. Continuous budgeting.
e. Primary budgeting.
What is d:
Continuous budgeting.
The most important budget for a company to plan:
a. Sales budget
b. Cash budget
c. Direct materials budget
d. Production budget
e. Factory overhead budget
What is b:
Cash budget