Question

1. Which of the following is correct for the Cash Flow Statement(CFS)

A .An increase in Accounts Receivable is a source of cash and should be in the CFS Investing Activities

B. A payment of long term notes payable is a use of cash and should be in the CFS Financing Activities

C. Deduct non cash expenditures from Net Income in the Operating Activities of the CFS

D. A paid cash dividend is a use of cash and should be deducted from Net Income in the Operating Activities of the CFS

2. Which of the following statements is False

A. Increase in Liabilities are sources of Cash

B. All changes in Common stock should be included in the Financing section of the Cash flow

C. A purchase of land with the issuance of stock is considered a non-cash activity

D. Adjustments to Net Income included in the Operating activities include add back of all non-cash expenses, the addition of all Gains on sale of Fixed assets and the deduction of all Losses on sale of fixed assets

3. The following are all uses of Cash except

A. Increase in Merchandise Inventory

B. Purchase of Treasury Shares

C. Increase in Salaries Payable

D. Decrease in Long Term Notes Payable

Answer 1

1. Answer is B. A payment of long term notes payable is a use of cash and should be in the CFS Financing Activities.

Since Payment of Long Term Notes Payable is outflow and therefore the same shall be reported in CFS Financing Activities as it relates to long term funding.

2. Answer is A. Increase in Liabilities are sources of Cash

It is not necessary that every increase in liability is a source of Cash. For e.g. Goods Received on credit from Vendor increases the Vendor Liability but not a receipt of Cash.

3. Answer is A. Increase in Merchandise Inventory

Increase in Merchandise Inventory may also be on Credit.

For e.g. Goods Received on credit from Vendor increases the Vendor Liability but not a receipt of Cash.