Cash Flow Classification
This section of the cash flow statement adjusts net income for non‑cash items and changes in current assets and liabilities.
What is operating activities
This ratio measures a company’s ability to meet interest payments.
What is times interest earned
Sales = $50,000; COGS = $30,000. First calculate gross profit, then compute the gross profit ratio.
What is 40%
This financial statement shows a company’s financial position at a point in time.
What is the balance sheet
Net income = $20,000
Depreciation = $5,000
Bought equipment for $8,000 cash
Paid dividends of $2,000
What is Operating = $25,000; Investing = (8,000); Financing = (2,000)
Buying equipment for cash is classified as this type of activity.
What is investing
This ratio compares total liabilities to stockholders’ equity.
What is debt‑to‑equity
Net income = ?, Revenues = $80,000, Expenses = $62,000. First compute net income, then compute return on assets if average assets = $200,000.
What is 9%
This principle requires expenses to be recorded in the same period as the revenues they help generate.
What is the matching principle
Net income = $30,000
Accounts receivable increased by $4,000
Sold equipment for $6,000 cash
Issued common stock for $10,000
What is Operating = $26,000; Investing = $6,000; Financing = $10,000
Issuing common stock for cash belongs in this cash flow section.
What is financing
This profitability ratio uses net income and average total assets.
What is return on assets
Net income = ?, Revenues = $120,000, Expenses = $95,000. Compute net income, then compute profit margin.
What is 20.8%
This method of cash flow reporting begins with net income and adjusts for non‑cash items.
What is the indirect method
Net income = $40,000
Inventory decreased by $3,000
Depreciation = $7,000
Purchased long‑term investments for $12,000 cash
Repaid $5,000 of loan principal
What is Operating = $50,000; Investing = (12,000); Financing = (5,000)
Collecting cash from customers increases cash in this section.
What is operating activities
A higher debt‑to‑equity ratio indicates higher levels of this.
What is risk
Net income = ?, Revenues = $200,000, COGS = $140,000, Operating expenses = $30,000. Compute net income, then compute ROA if average assets = $300,000.
What is 10%
This term describes the owners’ residual claim to company assets.
What is stockholders’ equity
Net income = $55,000
Accounts payable decreased by $6,000
Prepaid rent increased by $2,000
Sold land for $20,000 cash
Borrowed $15,000 by signing a note
What is Operating = $47,000; Investing = $20,000; Financing = $15,000
Paying cash dividends to shareholders is reported in this section.
What is financing
This ratio shows how many times a company can cover interest expense with earnings before interest and taxes.
What is times interest earned
Net income = ?, Revenues = $150,000, Expenses = $110,000. Compute net income, then compute times interest earned if interest expense = $10,000 and tax expense = $5,000.
What is 6.5 times
This accounting basis records revenues when earned and expenses when incurred.
What is accrual accounting
Net income = $70,000
Depreciation = $10,000
Accounts receivable decreased by $5,000
Inventory increased by $4,000
Bought equipment for $25,000 cash
Paid dividends of $8,000
Issued bonds for $50,000
What is Operating = $81,000; Investing = (25,000); Financing = $42,000