Ch5prob - Ketz-Cash Flow Statement Page 5-45 REVIEW...

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Ketz--Cash Flow Statement Page 5-45 REVIEW QUESTIONS 1. What are the purposes of the cash flow statement? 2. Define cash flow, cash inflow, and cash outflow. 3. What is the cash flow statement and what are its components? 4. What is meant by operating, investing, and financing activities? 5. One way of computing cash flows from operating activities is with the indirect method. What is the indirect method? 6. Why is depreciation added to net income in the indirect method? 7. Why are gains (losses) from the sale of assets such as land, buildings, and equipment subtracted (added) to net income in the indirect method? 8. Contrast accrual accounting and cash accounting. 9. What is the direct method? 10. Explain how to convert a revenue from the accrual to a cash basis. 11. Explain how to convert an expense from the accrual to a cash basis. 12. What are the five steps in the T-account method? 13. When applying the T-account method, one makes entries that explain the changes in the balance sheet accounts. Explain how you handle income statement accounts and how you handle cash when you carry out this step. 14. How can one prepare the cash flow statement from the T-account indirect method? 15. Indicate how the T-account method for the indirect method corresponds with the change-in-cash formula for the indirect method. 16. How does one prepare the cash flow statement from the T-account direct method? 17. Discuss the formation of the cash flow statement with the worksheet for the indirect method? for the direct method?
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Ketz--Cash Flow Statement Page 5-46 DISCUSSION QUESTIONS 1. How can a firm have positive earnings and yet go bankrupt? 2. Why might a growth firm have a strain on its cash flow? Does a negative cash flow automatically imply that a firm is in financial trouble? 3. The most common way of preparing the cash flow statement, as discussed in the chapter, is to use the accounts to generate the balance sheet and the income statement and then adjust these statements via the T-account or the worksheet method. It is possible, however, to employ subsidiary cash accounts that enable the preparation of the cash flow statement, as long as the direct method is used. The subsidiary cash accounts are beginning cash balance, cash from operating activities, cash from investing activities, and cash from financing activities. These accounts could be refined even further (for example, replacing cash from operating activities by cash from sales, cash expended for inventory, cash expended for wages, etc.). Kendel’s Kennels employs a subsidiary ledger for cash that indicates the cash flow activity. The beginning cash balance is $3,500. Kendel’s Kennels had the following transactions during the month of January. January 2.
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This note was uploaded on 01/26/2011 for the course HRIM 318 taught by Professor Howard,paul during the Fall '10 term at Pennsylvania State University, University Park.

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Ch5prob - Ketz-Cash Flow Statement Page 5-45 REVIEW...

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