WGU C213 Topic Five Study Guide Questions and Answers Fully Solved 100%
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WGU C213 Topic
Institution
WGU C213 Topic
why was the statement of cash flows created? - Answer-sometimes earnings fail,
everything is one page, its a powerful forecasting tool
sometimes earnings fail (net income) - Answer-- big loss scenario: earnings are too
pessimistic (makes things look worse than they are)
how to prepare a stateme...
WGU C213 Topic Five Study Guide
why was the statement of cash flows created? - Answer-sometimes earnings fail,
everything is one page, its a powerful forecasting tool
sometimes earnings fail (net income) - Answer-- big loss scenario: earnings are too
pessimistic (makes things look worse than they are)
how to prepare a statement of cash flows when detailed cash flow information is not
available? - Answer-a statement of cash flows can be prepared using knowledge of how
the three primary financial statements articulate. Operating cash flow can be reported
using either the direct or the indirect method.
6 step process
statement of cash flows - Answer-summarizes a company's cash flows for a period of
time
reports cash inflow and cash outflow during a period, with an emphasis on the amount
of CASH GENERATED BY OPERATIONS
income statement and statement of cash flows are not replacements for each other -
Answer-each have a different purpose
income statement measures the results of operations for a period of time and the
statement of cash flows reports the period's transactions and events in terms of their
impact on cash
the birth of the statement of cash flows - Answer-created in the US in 1988
- rapid growth scenario: earnings are too optimistic (if something happens, a lot of other
things need to be done. faster growth = harder things will be)
- reality check scenario: earnings are too "iffy" (not as reliable)
everything is on one page - Answer-operating activities (things we do routinely every
day, the reason we are in business)
investing activities (expanding the productive capacity of the business)
financing activities (getting the cash for a new expansion and distributing cash to those
who have provided financing in the past)
, forecasting tool - Answer-imposes practical numerical discipline on exciting
entrepreneurial plans for the future
(teaching tool) proper understanding of the statement of cash flows links the balance
sheet and the income statement through an understanding of business events
pro forma - Answer-a predication "forecast" of what the actual cash flow statement will
look like in future years if the operating, investing, and financial plans are implemented
if you don't like the implications of the forecast, you must change one or more of the
assumptions
The statement of cash flows replaces the
Balance sheet
Statement of financial position
Income statement
None of these - Answer-None of these
The statement of cash flows...
Provides a connecting link between two consecutive income statements
Summarizes all cash inflows and outflows of an entity for a given period of time
Is intended primarily to provide necessary information for assessing the profitability of
an entity
Is a required statement only for those companies using cash-basis accounting -
Answer-Summarizes all cash inflows and outflows of an entity for a given period of time
Which of the following is NOT a purpose of the statement of cash flows?
It measures the profitability of an entity.
It highlights changes in managerial strategy regarding investments and finances.
It provides investors with information about the investing and financing activities of an
entity.
It provides information about an entity's cash receipts and payments over a period of
time. - Answer-It measures the profitability of an entity.
Which of the following statements is NOT true?
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