11.3 Prepare the cash flow statement using the indirect method
1) Most businesses prefer to use the indirect method of formatting a cash flow statement.
2) In order to prepare a cash flow statement using the indirect method, you need the income statement only.
3) The operating section of a cash flow statement using the indirect method is prepared differently from the operating section of a cash flow statement using the direct method.
4) Operating cash flows under the indirect method starts with the net income for the period from the income statement.
5) Even though depreciation, depletion, and amortization are expenses, they are considered non-cash transactions and must be subtracted from net income in the operating activities section of an indirect method cash flow statement.
6) Changes in the long-term assets and long-term liabilities accounts must be analyzed to determine how they are presented in the operating section of a cash flow statement.
7) The sum of the net increases/decreases in the operating, investing, and financing sections of the cash flow statement is equal to the change in cash over the period.
8) A transaction that exchanged a building for shares of stock would be an investing activity and would appear on the cash flow statement.
9) A transaction acquiring land by issuing a note for the full purchase price would not appear on the cash flow statement because no cash was involved, but it may be disclosed in a separate section.
10) Which would be added back to net income in the operating section of an indirect cash flow statement?
A) A decrease in accounts payable
B) Depreciation
C) An increase in accounts receivable
D) An increase in inventory
E) A gain on the sale of a vehicle