FIN 461 ALL CORE QUESTIONS AND ANSWERS
SURE A+
✔✔(T/F) It is possible for a company to post a healthy net income but still not have the
cash needed to pay its employees, suppliers, and creditors. - ✔✔T
✔✔(T/F) The statement of cash flows shows the changes in the income statement
accounts between periods. - ✔✔F
✔✔(T/F) The four parts of a cash flow statement are cash, operating activities, profit
activities, and financing activities. - ✔✔F
✔✔(T/F) Payments for purchases of inventory, operating expenses, and interest are all
classified as operating activities on the statement of cash flows. - ✔✔T
✔✔(T/F) Proceeds from borrowing and issuing the firm's own equity securities are
examples of financing cash inflows. - ✔✔T
✔✔(T/F) Cash from sales of property, plant and equipment and cash collections from
loans to others are examples of investing cash flows. - ✔✔T
✔✔(T/F) A decrease in an asset account constitutes a cash outflow on the cash flow
statement. - ✔✔F
✔✔(T/F) The change in retained earnings is often the product of both an operating and
a financing activity. - ✔✔T
✔✔(T/F) Cash flows from operating activities represent cash generated internally, while
Cash flows from investing and financing activities provide cash from external sources. -
✔✔T
, ✔✔(T/F) Using the indirect method to prepare a statement of cash flows requires
converting net income to cash flow from operating activities. - ✔✔T
✔✔(T/F) An increase in an asset account or decrease in a liability or equity account is a
cash outflow. - ✔✔T
✔✔(T/F) Gains and losses from asset sales are considered an operating activity. - ✔✔F
✔✔(T/F) Depreciation and amortization expense are added back to net income because
they represent the recognition of a cash expense. - ✔✔F
✔✔(T/F) An increase in cash is equal to net cash provided by operating activities plus
net cash provided by financing activities minus net cash provided by investing activities.
- ✔✔F
✔✔(T/F) An increase in accounts receivable means the firm has collected cash from
customers. - ✔✔F
✔✔(T/F) An increase in accounts payable means the firm has not yet paid their
suppliers. - ✔✔T
✔✔(T/F) The statement of cash flows is helpful in determining the capacity of a firm to
meet obligations for cash. - ✔✔T
✔✔(T/F) While creditors rely heavily on cash flow information, investors do not need to
be concerned with cash flows and can rely exclusively on earnings. - ✔✔F
✔✔(T/F) Temporary shortfalls of cash can be satisfied by borrowing or other means,
such as selling long-lived assets, but ultimately a company must generate cash from
operations. - ✔✔T
✔✔(T/F) Cash flow from operations is especially important for those firms that are
heavily invested in inventories and use accounts receivables and accounts payables as
a major part of business operations. - ✔✔T
✔✔(T/F) Generating cash from investing activities is the preferred method for obtaining
excess cash. - ✔✔F
✔✔(T/F) The summary analysis of the statement of cash flows categorizes yearly cash
flows as inflows or outflows. - ✔✔T
SURE A+
✔✔(T/F) It is possible for a company to post a healthy net income but still not have the
cash needed to pay its employees, suppliers, and creditors. - ✔✔T
✔✔(T/F) The statement of cash flows shows the changes in the income statement
accounts between periods. - ✔✔F
✔✔(T/F) The four parts of a cash flow statement are cash, operating activities, profit
activities, and financing activities. - ✔✔F
✔✔(T/F) Payments for purchases of inventory, operating expenses, and interest are all
classified as operating activities on the statement of cash flows. - ✔✔T
✔✔(T/F) Proceeds from borrowing and issuing the firm's own equity securities are
examples of financing cash inflows. - ✔✔T
✔✔(T/F) Cash from sales of property, plant and equipment and cash collections from
loans to others are examples of investing cash flows. - ✔✔T
✔✔(T/F) A decrease in an asset account constitutes a cash outflow on the cash flow
statement. - ✔✔F
✔✔(T/F) The change in retained earnings is often the product of both an operating and
a financing activity. - ✔✔T
✔✔(T/F) Cash flows from operating activities represent cash generated internally, while
Cash flows from investing and financing activities provide cash from external sources. -
✔✔T
, ✔✔(T/F) Using the indirect method to prepare a statement of cash flows requires
converting net income to cash flow from operating activities. - ✔✔T
✔✔(T/F) An increase in an asset account or decrease in a liability or equity account is a
cash outflow. - ✔✔T
✔✔(T/F) Gains and losses from asset sales are considered an operating activity. - ✔✔F
✔✔(T/F) Depreciation and amortization expense are added back to net income because
they represent the recognition of a cash expense. - ✔✔F
✔✔(T/F) An increase in cash is equal to net cash provided by operating activities plus
net cash provided by financing activities minus net cash provided by investing activities.
- ✔✔F
✔✔(T/F) An increase in accounts receivable means the firm has collected cash from
customers. - ✔✔F
✔✔(T/F) An increase in accounts payable means the firm has not yet paid their
suppliers. - ✔✔T
✔✔(T/F) The statement of cash flows is helpful in determining the capacity of a firm to
meet obligations for cash. - ✔✔T
✔✔(T/F) While creditors rely heavily on cash flow information, investors do not need to
be concerned with cash flows and can rely exclusively on earnings. - ✔✔F
✔✔(T/F) Temporary shortfalls of cash can be satisfied by borrowing or other means,
such as selling long-lived assets, but ultimately a company must generate cash from
operations. - ✔✔T
✔✔(T/F) Cash flow from operations is especially important for those firms that are
heavily invested in inventories and use accounts receivables and accounts payables as
a major part of business operations. - ✔✔T
✔✔(T/F) Generating cash from investing activities is the preferred method for obtaining
excess cash. - ✔✔F
✔✔(T/F) The summary analysis of the statement of cash flows categorizes yearly cash
flows as inflows or outflows. - ✔✔T
