Cash Flow Activities in Business Quiz

Investing activities involve acquiring and disposing of long-term assets such as property, plant, and equipment.

A positive cash flow from operating activities suggests that the company is generating more cash than it is spending in its core business operations, indicating profitability.

The primary purpose of the statement of cash flows is to track how cash moves in and out of a business over a specific period.

The income statement is directly linked to the statement of cash flows as changes in income affect cash flows.

Cash received from selling goods or services is included in the operating activities section of the statement of cash flows.

A decrease in accounts payable means the company is paying off its obligations, leading to a decrease in cash flow from operating activities.

Cash equivalents are highly liquid investments with a maturity of three months or less.

Cash received from issuing stocks or bonds is included in the financing activities section of the statement of cash flows.

Depreciation expense is a non-cash activity that appears on the statement of cash flows as it represents the allocation of past expenditures.

A positive cash flow from financing activities suggests that the company may be repurchasing its own shares.

Selling equipment is considered an investing activity, not a financing activity which typically involves transactions with owners and creditors.

Depreciation is a non-cash expense and does not directly impact cash flow from operating activities.

A negative cash flow from financing activities suggests the company may be repaying debt or facing challenges in raising capital.

An increase in inventory ties up cash, reducing cash flow from operating activities.

Interest received is not included in the operating activities section; it is typically part of investing or financing activities.

A decrease in accounts receivable means the company is collecting more cash, leading to an increase in cash flow from operating activities.

An increase in accounts payable means the company is delaying payments, leading to an increase in cash flow from operating activities.

A decrease in long-term debt indicates that the company is repaying debt, leading to a decrease in cash flow from financing activities.

The purchase of property, plant, and equipment is included in the investing activities section of the statement of cash flows.

An increase in accounts receivable ties up cash, leading to a decrease in cash flow from operating activities.

A decrease in accounts receivable means the company is collecting more cash, leading to an increase in cash flow from operating activities.

Free cash flow is calculated as Net income + Depreciation - Capital expenditures - Change in working capital.

A positive cash flow from investing activities suggests that the company is investing in expansion or acquiring assets.

The indirect method shows changes in balance sheet accounts that impact cash flow, providing a reconciliation between net income and cash flow.

A negative cash flow from investing activities suggests that the company is investing heavily in assets or expansion.