Preview real exam-style questions before you buy—see exactly what you're getting.
Free sample questions with detailed explanations • No signup required.
Statement of Cash Flows Practice Exam Quiz
Master the financial statement that tells the story of liquidity and cash management with the Statement of Cash Flows Practice Exam Quiz. This targeted exam pack gives accounting students, finance professionals, and exam candidates realistic, exam-style problems that mirror the calculation, classification, and analytical questions you’ll face in class, on certifications, or in interviews. Each question focuses on core skills—preparing cash flow statements by the indirect and direct methods, reconciling net income to cash from operations, classifying investing and financing cash flows, and computing free cash flow and cash flow ratios—paired with clear, step-by-step explanations. Use it to sharpen technical accuracy, speed up your statement preparation, and build the interpretive skills needed to explain what cash movements mean for a company’s financial health. Practical, concise, and practice-oriented, this resource helps you turn textbook procedures into confident, exam-ready performance.
What is the Statement of Cash Flows?
The statement of cash flows is one of the primary financial statements that explains how cash enters and exits a business during a reporting period. Unlike the income statement or balance sheet, which reflect accrual accounting and positions at a point in time, the cash flow statement shows actual cash generation and use—essential for assessing liquidity, solvency, and a company’s ability to meet obligations or invest in growth. It is organized into three sections: operating activities (cash from core business operations), investing activities (cash used for or received from buying/selling long-term assets), and financing activities (cash flows from borrowing, repaying debt, issuing equity, or paying dividends).
Preparing a cash flow statement requires reconciling net income to cash provided by operations (indirect method) or listing cash receipts and payments directly (direct method), correctly classifying noncash transactions, and treating changes in working capital, depreciation, gains/losses, and discontinued operations appropriately. Analysts rely on cash flow analysis—free cash flow, operating cash flow ratios, and cash conversion cycles—to evaluate financial flexibility and the sustainability of earnings. Mastery of the statement of cash flows lets you translate accounting numbers into actionable business insight.
Topics covered in this practice exam
- Preparing Cash Flows (Indirect Method): Reconciliation of net income to cash from operating activities—adjustments for depreciation, amortization, gains/losses, and working capital changes.
- Preparing Cash Flows (Direct Method): Constructing cash receipts from customers and cash payments to suppliers and employees.
- Classifying Investing & Financing Activities: Correct treatment of asset purchases/sales, capital expenditures, debt issuance/repayments, dividends, and equity transactions.
- Noncash Transactions & Disclosures: Accounting for stock dividends, asset swaps, leases, and noncash financing events; disclosure requirements.
- Free Cash Flow & Cash Flow Ratios: Calculating free cash flow (FCF), operating cash flow ratio, cash flow margin, and interpreting liquidity and solvency signals.
- Working Capital Changes & Cash Conversion Cycle: Linking receivables, inventory, and payables to operating cash flow and short-term liquidity.
- Adjustments for Extraordinary Items & Consolidation Issues: Handling discontinued operations, minority interests, and intercompany eliminations in cash flows.
- Forecasting & Cash Flow Modeling: Basics of projecting cash flows for budgeting, valuation, and stress testing.
- Problem-Spotting & Common Errors: Typical mistakes—misclassifying interest/dividends, double-counting, and ignoring noncash impacts.
Each problem includes worked solutions and commentary to build both procedural fluency and interpretive judgment.
Who should take this practice exam?
- Accounting students studying financial reporting, intermediate accounting, or auditing.
- Finance students and MBA candidates needing focused practice on cash flow analysis for valuation and corporate finance.
- Candidates preparing for accounting certifications (e.g., CPA, CMA) who need problem-level rehearsal.
- Financial analysts, controllers, and treasurers brushing up on cash statement preparation and troubleshooting.
- Tutors and instructors seeking ready-to-use problems for classroom or online review.
Who will find it useful?
- Individuals who want to move beyond memorizing rules to actually preparing and explaining cash flow statements under time pressure.
- Study groups practicing timed problems and peer review of classifications and reconciliations.
- Professionals preparing for case interviews, technical screens, or role-based assessments that include financial-statement tasks.
- Educators building exam banks, assignments, or practical workshops on cash-flow mechanics.
Example question theme (illustrative)
A company reports net income of $150,000. During the year, depreciation expense was $25,000; accounts receivable increased by $10,000; inventory decreased by $8,000; accounts payable increased by $6,000; it sold equipment for $12,000 resulting in a gain of $2,000; purchased new machinery for $40,000; issued long-term debt of $50,000 and paid dividends of $10,000. Prepare the statement of cash flows (indirect method) showing cash flows from operating, investing, and financing activities, and calculate free cash flow. This problem tests your ability to reconcile net income to operating cash, classify investing and financing transactions correctly, and compute FCF.
Study tips — how to get the most from this resource
- Master the reconciliation logic: Practice the indirect method until adjustments (depreciation add-back, working capital movements) become automatic—timelines and signs matter.
- Practice direct vs indirect side-by-side: Do the same example both ways to see how operating cash is represented differently but results agree.
- Make a classification cheat sheet: Note where common items belong—interest, dividends, debt issuance, stock repurchases—and remember jurisdictional differences for IFRS vs US GAAP if relevant.
- Build quick templates: Create a reusable worksheet with sections for operating, investing, financing, and FCF so you can populate numbers quickly under exam conditions.
- Track noncash items separately: Record gains/losses, depreciation, and noncash financing in a separate column so they don’t get double counted.
- Convert journal entries to cash-flow impacts: Practice turning accrual entries (e.g., accrual of revenue or expense) into cash movements to strengthen conceptual mapping.
- Time yourself and review errors: Work sets of problems under timed conditions, then analyze mistakes to eliminate recurring slips.
The statement of cash flows is the practical litmus test of a company’s financial vitality. The Statement of Cash Flows Practice Exam Quiz equips you with the problems, worked solutions, and classification rules needed to prepare statements accurately and interpret cash-flow signals confidently. Regular practice will improve your speed, reduce classification errors, and sharpen your ability to explain what cash movements mean for value, liquidity, and strategic choices. Download the practice pack, run timed drills, and turn cash-flow fluency into a competitive advantage for exams and real-world finance work.
Questions
What is the primary purpose of the statement of cash flows?
A) To provide a summary of revenues and expenses
B) To show the financial position at a specific point in time
C) To show the cash inflows and outflows over a period
D) To report on shareholder equity
Which section of the cash flow statement includes transactions involving long-term assets?
A) Operating activities
B) Financing activities
C) Investing activities
D) Non-cash activities
What method is used to report cash flows from operating activities in the cash flow statement?
A) Accrual method
B) Direct method and indirect method
C) Historical cost method
D) Revenue recognition method
Which of the following would be considered an operating activity on the statement of cash flows?
A) Purchase of equipment
B) Issuance of stock
C) Payment of rent
D) Borrowing long-term debt
Which of the following is not reported in the cash flow from operating activities section?
A) Depreciation expense
B) Sale of equipment
C) Increase in accounts payable
D) Cash receipts from customers
Which of the following is true about the direct method of reporting cash flows?
A) It adjusts net income for non-cash items
B) It reports cash inflows and outflows directly
C) It only includes major non-cash items
D) It is mandatory under GAAP
Under the indirect method, how is depreciation handled on the cash flow statement?
A) It is added to net income
B) It is subtracted from net income
C) It is reported as a cash outflow
D) It is not included
Which type of activity would include paying dividends?
A) Operating activities
B) Financing activities
C) Investing activities
D) Non-cash investing activities
What is the correct treatment of the purchase of new machinery in the cash flow statement?
A) Cash inflow under operating activities
B) Cash outflow under investing activities
C) Cash inflow under financing activities
D) Cash outflow under financing activities
What should be included in the cash flows from financing activities?
A) Salaries paid to employees
B) Repayment of bank loan
C) Purchase of inventory
D) Cash collected from customers
Which of the following would appear in the investing activities section?
A) Payments to suppliers
B) Interest received on bonds
C) Sale of a building
D) Dividends paid
How would an increase in accounts receivable affect cash flow under the indirect method?
A) It would increase cash flow
B) It would decrease cash flow
C) It would have no effect
D) It would move to investing activities
In the statement of cash flows, which method presents a more detailed report of cash received and cash paid for operations?
A) Indirect method
B) Direct method
C) Accrual method
D) Historical method
What type of cash flow is recorded when a company issues new stock?
A) Operating activities
B) Financing activities
C) Investing activities
D) Non-cash investing activities
Which of the following is classified as a cash equivalent?
A) A 12-month certificate of deposit
B) A long-term bond investment
C) A 10-year treasury bond
D) Accounts payable
How are non-cash investing and financing activities disclosed in the financial statements?
A) They are included in the cash flow from operations
B) They are disclosed in the footnotes or as a separate schedule
C) They are ignored in financial reporting
D) They are part of the operating activities section
When a company pays interest on a loan, where does it appear on the statement of cash flows?
A) Financing activities
B) Investing activities
C) Operating activities
D) Non-cash activities
Which of the following best describes a cash inflow from financing activities?
A) Sale of equipment
B) Proceeds from issuing bonds payable
C) Receipt of interest on investments
D) Payment of rent
What type of activity is the payment of interest on a loan classified as?
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
Which of the following statements about the cash flow statement is true?
A) It is not necessary if the company has a strong income statement.
B) It provides an overview of the company’s revenue and expenses only.
C) It helps assess the company’s ability to generate cash.
D) It is primarily used for tax calculations.
What happens when a company receives cash from customers under the direct method?
A) It is classified under investing activities.
B) It is included in operating activities as a cash inflow.
C) It is included under financing activities as an inflow.
D) It is excluded from cash flow reporting.
Which of the following transactions is not included in the operating section of the cash flow statement?
A) Collection of accounts receivable
B) Purchase of office supplies
C) Sale of a piece of machinery
D) Payment of salaries
If a company repays a long-term loan, what effect does it have on the cash flow statement?
A) Increase in cash flow under operating activities
B) Increase in cash flow under investing activities
C) Decrease in cash flow under financing activities
D) No effect
Which of the following would be considered an investing cash flow?
A) Payment of dividends
B) Sale of shares in another company
C) Collection of rent revenue
D) Payment of employee wages
How would the purchase of a patent be classified in the cash flow statement?
A) Operating activity
B) Financing activity
C) Investing activity
D) Non-cash activity
Which of the following is considered a cash inflow from operating activities?
A) Sale of land
B) Cash received from customers for services provided
C) Issuance of common stock
D) Payment of dividends
How would the acquisition of a patent be classified in the cash flow statement if paid for with cash?
A) Operating activity
B) Financing activity
C) Investing activity
D) Non-cash activity
Which of the following transactions would not appear in the cash flow statement?
A) Payment of rent for office space
B) Depreciation expense
C) Purchase of new inventory
D) Proceeds from the sale of equipment
Which method requires adjusting net income for changes in non-cash items to compute cash flow from operations?
A) Direct method
B) Indirect method
C) Accrual method
D) Cash basis method
What is the effect on cash flow from operating activities when there is an increase in prepaid expenses?
A) It increases cash flow
B) It decreases cash flow
C) It has no effect on cash flow
D) It affects investing activities
How should the cash payment of dividends be reported on the cash flow statement?
A) As an operating activity
B) As an investing activity
C) As a financing activity
D) As a non-cash activity
Which of the following is considered a non-cash investing and financing activity?
A) Payment of interest on a loan
B) Purchase of equipment through a long-term note payable
C) Issuance of stock for cash
D) Collection of rent income
When using the indirect method, an increase in accounts payable is:
A) Added to net income
B) Subtracted from net income
C) Reported as an investing activity
D) Reported as a financing activity
What is reported as a cash flow from investing activities?
A) Payment of interest on a bond
B) Proceeds from the sale of land
C) Collection of accounts receivable
D) Payment for salaries
In a cash flow statement, which of the following activities is classified under financing activities?
A) Purchase of office supplies
B) Sale of investments in other companies
C) Issuance of bonds payable
D) Payment of taxes
Under the direct method, how is interest paid shown in the cash flow statement?
A) As an operating activity cash outflow
B) As an investing activity cash outflow
C) As a financing activity cash outflow
D) Not shown
Which of the following would not be included in the investing section of the cash flow statement?
A) Purchase of machinery
B) Proceeds from the sale of a patent
C) Payment of dividends
D) Purchase of an investment in stocks
If a company receives cash from a lawsuit settlement, how should this be reported on the cash flow statement?
A) As an investing activity
B) As an operating activity
C) As a financing activity
D) Not reported
What would be the effect on the cash flow from operating activities if accounts receivable decreases during the period?
A) Cash flow would increase
B) Cash flow would decrease
C) No effect on cash flow
D) It would be reported under investing activities
Which of the following items is generally excluded from the cash flow statement?
A) Purchase of bonds
B) Interest paid
C) Depreciation expense
D) Issuance of new stock
How should the payment for the purchase of equipment be shown in the cash flow statement?
A) As an operating activity cash outflow
B) As a financing activity cash outflow
C) As an investing activity cash outflow
D) Not shown
When a company issues stock to acquire an asset, how is this reported?
A) As a cash flow from operating activities
B) As a cash flow from investing activities
C) As a non-cash financing activity
D) Not reported on the statement
Which section of the statement of cash flows includes cash flows related to transactions with creditors and owners?
A) Operating activities
B) Investing activities
C) Financing activities
D) Non-cash activities
What effect would an increase in accrued expenses have on the cash flow from operating activities under the indirect method?
A) Decrease cash flow
B) Increase cash flow
C) No effect
D) It would be reported under investing activities
Which of the following transactions would be included in the cash flow from financing activities?
A) Sale of inventory
B) Repayment of a long-term loan
C) Purchase of equipment
D) Depreciation of assets
What is the correct classification for a gain on the sale of equipment in the cash flow statement?
A) Operating activity
B) Investing activity, as a cash inflow
C) Financing activity
D) Non-cash activity
How are the cash flows from investing and financing activities typically reported?
A) Net totals only
B) As a combined figure in operating activities
C) Separately, with inflows and outflows disclosed
D) Only as inflows
When using the indirect method, how is a gain on the sale of equipment adjusted?
A) Subtracted from net income
B) Added to net income
C) Ignored
D) Shown as a separate line item
What would be the effect of a decrease in prepaid expenses on cash flow from operating activities?
A) Increase cash flow
B) Decrease cash flow
C) No effect
D) Increase investing activities
When a company borrows money and receives cash, how is this reflected in the cash flow statement?
A) Operating activity, cash inflow
B) Investing activity, cash inflow
C) Financing activity, cash inflow
D) Non-cash activity
Which of the following is considered an operating activity on the cash flow statement?
A) Payment of dividends
B) Purchase of equipment
C) Cash collected from customers
D) Issuance of bonds
Under the indirect method, how is depreciation expense treated in the operating activities section?
A) Subtracted from net income
B) Added back to net income
C) Ignored
D) Reported as a cash outflow
An increase in accounts payable is shown in the cash flow statement under which category?
A) Investing activity
B) Operating activity
C) Financing activity
D) Non-cash activity
Which of the following is NOT classified as an operating activity?
A) Payment of interest on a loan
B) Collection of accounts receivable
C) Purchase of new equipment
D) Payment of wages
How would an increase in inventory affect cash flow from operating activities under the indirect method?
A) Increase cash flow
B) Decrease cash flow
C) No effect
D) Reported as a financing activity
Which of the following transactions is classified as an investing activity?
A) Payment of rent
B) Collection of dividends from an investment
C) Purchase of land
D) Issuance of common stock
What is reported as a cash inflow from investing activities?
A) Proceeds from the sale of equipment
B) Issuance of bonds payable
C) Payment of wages
D) Collection of accounts receivable
How should the purchase of a new building be reported on the cash flow statement?
A) Operating activity, cash outflow
B) Financing activity, cash outflow
C) Investing activity, cash outflow
D) Non-cash activity
The cash flow from the sale of investments in stocks would be classified as:
A) Operating activity
B) Financing activity
C) Investing activity
D) Non-cash activity
Which of the following is NOT classified as an investing activity?
A) Purchase of bonds
B) Sale of equipment
C) Payment of interest on a loan
D) Buying shares of another company
The cash received from issuing new shares of stock should be classified as:
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
Repayment of a long-term loan should be reported as a cash flow under:
A) Operating activities
B) Investing activities
C) Financing activities
D) Non-cash activities
Which of the following transactions is considered a financing activity?
A) Payment to suppliers
B) Receipt of cash from customers
C) Issuance of bonds payable
D) Purchase of a patent
Cash dividends paid to shareholders should be classified under:
A) Operating activities
B) Investing activities
C) Financing activities
D) Non-cash activities
An increase in long-term debt would be reflected in the cash flow statement under which section?
A) Operating activities
B) Investing activities
C) Financing activities
D) Non-cash activities
What is the main difference between the direct and indirect methods of reporting cash flow from operating activities?
A) Direct method uses net income as a starting point; indirect method does not.
B) Indirect method adjusts net income for changes in non-cash items.
C) Direct method reports cash inflows and outflows directly; indirect method starts with net income and adjusts for changes.
D) There is no difference between the two methods.
Which activity would appear in all three sections (operating, investing, financing) in a cash flow statement if it is conducted frequently?
A) Issuing stock
B) Selling a building
C) Payment of interest
D) Collection of rent income
How would a decrease in prepaid expenses affect cash flow from operating activities?
A) Increase cash flow
B) Decrease cash flow
C) No effect
D) It is reported under investing activities
What is the correct classification for cash received from selling a company’s subsidiary?
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
Which of the following is an example of a cash flow from financing activities?
A) Payments to suppliers
B) Issuing bonds
C) Sale of inventory
D) Payment of rent
Which of the following is classified as a non-cash financing activity?
A) Payment of dividends
B) Purchase of equipment on credit
C) Repayment of a bank loan
D) Collection of cash from customers
What type of activity is the purchase of a trademark shown as?
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
A company reports the collection of a receivable as:
A) Operating activity, cash inflow
B) Investing activity, cash inflow
C) Financing activity, cash inflow
D) Not reported in the cash flow statement
If a company receives cash from a lawsuit settlement, it would be classified as:
A) Operating activity
B) Financing activity
C) Investing activity
D) Non-cash activity
Which section of the cash flow statement would report the payment for new machinery?
A) Operating activities
B) Financing activities
C) Investing activities
D) Non-cash activities
Answer: C) Investing activities
Which of the following would be classified as an operating activity in the statement of cash flows?
A) Sale of equipment
B) Payment of rent
C) Issuance of stock
D) Borrowing money
In the operating activities section, what is added back to net income in the indirect method?
A) Gain on sale of equipment
B) Depreciation expense
C) Increase in accounts payable
D) Dividends paid
Which of the following is subtracted from net income to calculate cash flow from operating activities?
A) Depreciation
B) Amortization
C) Increase in accounts receivable
D) Decrease in inventory
How would the payment of a lawsuit settlement be classified in the cash flow statement?
A) Investing activity
B) Financing activity
C) Operating activity
D) Non-cash activity
What is the impact of an increase in accrued liabilities on cash flow from operating activities?
A) Increase cash flow
B) Decrease cash flow
C) No effect
D) It is reported as an investing activity
The purchase of a new building would be classified under which section of the cash flow statement?
A) Operating activity
B) Financing activity
C) Investing activity
D) Non-cash activity
What type of activity is the sale of an investment in stock?
A) Operating activity
B) Financing activity
C) Investing activity
D) Non-cash activity
Proceeds from the sale of land should be reported as:
A) Operating activity, cash inflow
B) Financing activity, cash inflow
C) Investing activity, cash inflow
D) Non-cash activity
The cash outflow for purchasing equipment should be shown in which section of the cash flow statement?
A) Operating activities
B) Financing activities
C) Investing activities
D) Non-cash activities
Which of the following is NOT an investing activity?
A) Payment for acquiring property
B) Collection of a loan repayment
C) Issuance of a company bond
D) Sale of a patent
The cash received from issuing bonds should be classified as:
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
Which of the following is an example of a financing activity?
A) Purchase of inventory
B) Collection of interest income
C) Payment of dividends
D) Sale of fixed assets
Repayment of a bank loan is classified as which type of activity?
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
How should cash received from issuing common stock be reported on the cash flow statement?
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
What type of activity is the repayment of a long-term debt classified as?
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
What is the main difference between the direct and indirect methods of reporting cash flow from operating activities?
A) Direct method uses net income as a starting point; indirect method does not.
B) Indirect method adjusts net income for changes in non-cash items.
C) Direct method reports cash inflows and outflows directly; indirect method starts with net income and adjusts for changes.
D) There is no difference between the two methods.
Which of the following would be classified as an operating activity under the indirect method?
A) Increase in long-term debt
B) Sale of a subsidiary
C) Payment of income taxes
D) Purchase of new equipment
Which of the following is a non-cash activity?
A) Payment of dividends
B) Purchase of equipment using a long-term note
C) Collection of cash from customers
D) Sale of investments for cash
How is the collection of cash from customers reported in the cash flow statement?
A) Operating activity, cash inflow
B) Financing activity, cash inflow
C) Investing activity, cash inflow
D) Non-cash activity
An increase in prepaid expenses would have what impact on cash flow from operating activities under the indirect method?
A) Increase cash flow
B) Decrease cash flow
C) No effect
D) It is reported as an investing activity
A company issues bonds payable and receives cash. What is the correct classification of this transaction?
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
Which activity is shown as an inflow in the investing section of the cash flow statement?
A) Purchase of a new car
B) Sale of a machine
C) Repayment of a bank loan
D) Payment of interest on a loan
If a company buys back its own stock, this transaction would be classified as:
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
A company receives cash for the sale of a building that was previously used for operations. How should this cash flow be reported?
A) Operating activity
B) Financing activity
C) Investing activity
D) Non-cash activity
Which of the following items is not reported in the statement of cash flows?
A) Purchase of new machinery
B) Payment of rent for office space
C) Non-cash adjustment for an increase in accounts payable
D) Sale of an old truck
When using the indirect method, which of the following is added to net income to calculate cash flow from operating activities?
A) Amortization expense
B) Gain on sale of equipment
C) Increase in accounts payable
D) Dividend received
Which of the following represents an outflow of cash in operating activities?
A) Sale of equipment
B) Payment of salaries
C) Borrowing funds from a bank
D) Issuance of stock
Under the direct method, which of the following would be reported as a cash inflow?
A) Payment to suppliers
B) Collection from customers
C) Payment of interest on a loan
D) Depreciation of machinery
What type of activity is the payment of interest on a bond classified as?
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
Which of the following transactions would not be included in the cash flow from operating activities?
A) Payment of income tax
B) Collection of accounts receivable
C) Purchase of new equipment
D) Payment of rent
Which of the following would be reported as a cash outflow in the investing section of the cash flow statement?
A) Sale of inventory
B) Purchase of a new patent
C) Repayment of a loan
D) Collection of interest
The cash inflow from the sale of an investment in a subsidiary would be classified under:
A) Operating activities
B) Financing activities
C) Investing activities
D) Non-cash activities
What is reported as a cash inflow in the investing activities section?
A) Payment of dividends
B) Proceeds from the sale of equipment
C) Issuance of stock
D) Payment for legal fees
Which type of transaction would be classified as an investing activity in the statement of cash flows?
A) Paying for utilities
B) Selling shares of stock to the public
C) Purchasing a building
D) Paying interest on a loan
The purchase of long-term investments should be reported as:
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
If a company repays a portion of its long-term debt, how is this transaction classified?
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
Issuance of stock for cash would be reported as:
A) Operating activity
B) Financing activity
C) Investing activity
D) Non-cash activity
What type of activity is the payment of principal on a lease classified as?
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
Dividends paid to shareholders are classified as:
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
Cash inflows from issuing bonds payable would appear under which section of the cash flow statement?
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
Which of the following would be classified as a non-cash investing and financing activity?
A) Issuing common stock for cash
B) Purchasing equipment with a promissory note
C) Collecting cash from customers
D) Paying interest on a loan
In the statement of cash flows, which activity involves adjusting net income for changes in operating assets and liabilities?
A) Operating activities, direct method
B) Operating activities, indirect method
C) Investing activities
D) Financing activities
How should a gain on the sale of equipment be treated in the indirect method?
A) Added to net income
B) Subtracted from net income
C) Not included in cash flow from operating activities
D) Reported as an investing activity
A company sells a piece of equipment at a gain. What is the cash flow effect in the operating section of the statement of cash flows?
A) No adjustment is necessary
B) Subtract the gain from net income
C) Add the gain to net income
D) Report the gain as cash inflow in financing activities
The direct method of reporting cash flow from operating activities:
A) Starts with net income and adjusts for changes in non-cash items
B) Reports major categories of cash receipts and payments directly
C) Is easier to prepare than the indirect method
D) Is required by all accounting standards
Which of the following is a cash inflow from operating activities?
A) Sale of property, plant, and equipment
B) Issuance of bonds payable
C) Collection of accounts receivable
D) Payment of dividends
In the indirect method, how is an increase in accounts receivable treated?
A) Added to net income
B) Subtracted from net income
C) Reported as an investing activity
D) No adjustment is made
A company receives interest from an investment. In the cash flow statement, this is classified as:
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
Which of the following would be considered an outflow of cash from operating activities?
A) Sale of inventory
B) Repayment of a loan principal
C) Payment of employee wages
D) Issuance of bonds
Which of the following is a cash inflow that would be considered an operating activity under the direct method?
A) Sale of property
B) Collection of rent income
C) Borrowing funds from a bank
D) Issuance of common stock
The purchase of land is classified as what type of activity in the statement of cash flows?
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
A company sells its machinery at a gain. How is this transaction reflected in the cash flow statement?
A) As an operating activity inflow
B) As an investing activity inflow, with an adjustment for the gain
C) As a financing activity inflow
D) Not reflected in the statement of cash flows
Which of the following transactions is reported as a cash inflow in the investing activities section?
A) Purchase of a new vehicle
B) Sale of a long-term investment
C) Issuance of bonds payable
D) Payment of dividends
Which type of activity is the purchase of a patent classified under?
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
If a company receives cash from the sale of an investment in stock, it is classified as:
A) Operating activity
B) Financing activity
C) Investing activity
D) Non-cash activity
Repayment of a bank loan should be classified as:
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
Cash received from issuing new shares of stock would be reported as:
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
Dividends paid to shareholders are classified as:
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
A company issues bonds and receives cash. This transaction should be classified under:
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
Which of the following is not classified as a financing activity?
A) Payment of interest on a loan
B) Repurchase of own stock
C) Issuance of long-term debt
D) Payment of dividends
An increase in prepaid expenses is treated as:
A) An operating activity cash inflow
B) An operating activity cash outflow
C) An investing activity cash inflow
D) A non-cash activity
Which of the following would be considered a non-cash investing and financing activity?
A) Issuing common stock in exchange for equipment
B) Receiving a cash dividend
C) Selling goods on credit
D) Collecting a long-term receivable
The cash flow statement provides information on:
A) How a company’s cash inflows and outflows are related to operating, investing, and financing activities
B) The net profit of a company
C) The total assets of the company
D) The company’s revenues and expenses only
If a company reclassifies an investment from long-term to short-term, the cash flow impact is:
A) No impact on cash flow
B) A cash inflow under investing activities
C) A cash outflow under financing activities
D) A non-cash activity
Under the direct method, which of the following would not be included in cash flow from operating activities?
A) Payments to suppliers
B) Proceeds from the sale of equipment
C) Payments for rent
D) Collections from customers
Which of the following transactions would be excluded from the operating activities section when using the indirect method?
A) Depreciation expense
B) Increase in prepaid expenses
C) Gain on sale of equipment
D) Decrease in accounts payable
In the statement of cash flows, which of the following would be classified as a cash outflow from operating activities?
A) Issuing stock
B) Payment of interest on a loan
C) Sale of a long-term asset
D) Sale of inventory
Under the direct method, which of the following would be classified as a cash inflow?
A) Collection of rent from tenants
B) Sale of equipment
C) Issuance of new stock
D) Repayment of long-term debt
Which of the following best represents an operating activity in the cash flow statement?
A) Purchase of a new factory building
B) Borrowing funds from a bank
C) Payment of utilities
D) Sale of investments in stocks
A decrease in accrued expenses would be classified as what in the cash flow statement?
A) Cash inflow from operating activities
B) Cash outflow from operating activities
C) Investing activity
D) Financing activity
How is the purchase of investments in stocks classified in the statement of cash flows?
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
The proceeds from selling equipment would be recorded as:
A) Operating activity inflow
B) Investing activity inflow
C) Financing activity inflow
D) Non-cash activity
Which of the following is true for cash flows from investing activities?
A) They include transactions involving short-term investments only.
B) They involve cash transactions for long-term assets.
C) They are limited to the purchase of bonds.
D) They only include cash transactions with banks.
A company buys a patent for $100,000. This transaction should be reported as:
A) Operating activity cash outflow
B) Investing activity cash outflow
C) Financing activity cash outflow
D) Non-cash activity
Which of the following is not included in cash flows from investing activities?
A) Purchase of land
B) Sale of inventory
C) Purchase of bonds
D) Sale of equipment
Which of the following would be classified as a financing activity?
A) Purchase of new machinery
B) Payment of interest on bonds
C) Payment of dividends
D) Sale of long-term investments
The repurchase of company stock from shareholders would be reported as:
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
Issuing bonds payable results in:
A) An inflow of cash in operating activities
B) An inflow of cash in financing activities
C) An outflow of cash in investing activities
D) An outflow of cash in financing activities
Which of the following transactions is not considered a financing activity in the statement of cash flows?
A) Payment of dividends
B) Issuance of common stock
C) Collection of cash from customers
D) Repayment of bonds payable
If a company pays off a portion of its long-term debt, this would be reported as:
A) Operating activity outflow
B) Investing activity outflow
C) Financing activity outflow
D) Non-cash activity
An increase in deferred revenue would be treated as:
A) A cash inflow from operating activities
B) A cash outflow from operating activities
C) An investing activity
D) A non-cash activity
What type of activity is the issuance of a note payable classified as?
A) Operating activity
B) Investing activity
C) Financing activity
D) Non-cash activity
Which of the following is a non-cash investing and financing activity that must be disclosed?
A) Cash purchase of equipment
B) Conversion of bonds payable to common stock
C) Cash dividend paid
D) Purchase of inventory on credit
Which of the following would be classified as an operating activity using the direct method?
A) Receipt of dividends
B) Issuance of bonds
C) Repayment of a bank loan
D) Purchase of a building
Cash flows from operating activities generally include:
A) The sale of long-term assets
B) Interest payments and collections
C) Repayment of bank loans
D) Issuance of stock
Which of the following is an example of a cash inflow from operating activities?
A) Sale of a building
B) Collection of customer payments
C) Issuance of bonds payable
D) Purchase of equipment
Under the indirect method, which of the following adjustments is made to reconcile net income to net cash provided by operating activities?
A) Subtracting the increase in accounts receivable
B) Adding back depreciation expense
C) Adding back the increase in prepaid expenses
D) Subtracting the decrease in accrued liabilities
Which of the following is classified as a cash outflow from operating activities?
A) Purchase of investments
B) Payment of rent
C) Repayment of long-term debt
D) Proceeds from issuing stock
If a company reports an increase in accounts payable, this will result in:
A) An increase in cash flows from operating activities
B) A decrease in cash flows from operating activities
C) No impact on cash flows
D) An increase in cash flows from investing activities
Which of the following would be considered a non-cash operating activity?
A) Issuing a stock dividend
B) Depreciation of equipment
C) Payment of salaries
D) Receipt of interest income
Which of the following activities is considered an investing activity in the cash flow statement?
A) Paying dividends
B) Selling property, plant, and equipment
C) Payment of interest on loans
D) Receipt of interest on a savings account
Which of the following would be classified as an investing activity cash outflow?
A) Collection of a note receivable
B) Payment to purchase a new building
C) Issuance of bonds payable
D) Receipt of dividends from an investment
What type of activity is the purchase of a new vehicle for company use classified as?
A) Operating activity
B) Financing activity
C) Investing activity
D) Non-cash activity
The sale of land at a gain would be classified as:
A) Operating activity
B) Financing activity
C) Investing activity
D) Non-cash activity
Which of the following is an example of an investing activity?
A) Paying wages to employees
B) Collecting a loan from a customer
C) Buying equipment for production
D) Paying dividends to shareholders
Which of the following is reported as a cash inflow from financing activities?
A) Payment of income tax
B) Issuance of preferred stock
C) Sale of equipment
D) Purchase of inventory
Repayment of a long-term loan would be classified as:
A) Operating activity cash outflow
B) Investing activity cash outflow
C) Financing activity cash outflow
D) Non-cash activity
Dividends paid to shareholders are considered:
A) Operating activity outflow
B) Investing activity inflow
C) Financing activity outflow
D) Non-cash activity
Which of the following would be classified as a financing activity in the cash flow statement?
A) Purchasing inventory
B) Paying interest on bonds
C) Borrowing funds from a bank
D) Paying utilities
When a company issues bonds at a premium, the cash inflow should be classified as:
– A) Operating activity
– B) Investing activity
– C) Financing activity
– D) Non-cash activity
The statement of cash flows is most useful for:
– A) Determining a company’s profitability
– B) Evaluating the company’s ability to generate future cash flows
– C) Analyzing market trends
– D) Determining a company’s total revenue
Which of the following best describes the relationship between operating activities and net income?
– A) Operating activities are the same as net income.
– B) Net income is adjusted for changes in working capital to derive cash flows from operating activities.
– C) Net income is derived from cash flows from operating activities.
– D) There is no relationship between operating activities and net income.
What is a common adjustment made in the indirect method of preparing the statement of cash flows?
– A) Subtracting cash received from customers
– B) Adding cash paid to suppliers
– C) Subtracting the cash received from issuing stock
– D) Adding back non-cash expenses such as depreciation
A decrease in prepaid expenses is shown as:
– A) A cash inflow in operating activities
– B) A cash outflow in investing activities
– C) A cash inflow in investing activities
– D) A cash outflow in operating activities
Which of the following is true about the statement of cash flows?
– A) It is prepared only for publicly traded companies.
– B) It helps stakeholders understand how cash is generated and used.
– C) It is not necessary if a company has a positive net income.
– D) It only focuses on investing and financing activities.