7.Why is cash generated from operating activities more important than cash generated from other sources?
8.Presented below is a partial statement of cash flows for Santiago Company for the year ending June 30,2009.
Net income
$44,000
Adjustments to net income:
Add: Depreciation
7,000
Decrease in accounts receivable
12,000
Increase in salaries payable
5,000
Less: Gain on sale of equipment
(1,000)
Increase in inventories
(2,000)
Decrease in accounts payable
(5,000)
Net cash inflows from operating activities
$60,000
Mr. Santiago, the president of the Company, is puzzled by why a difference exists on the statement presented above, as compared to the company’s income statement for the same period that shows net income of $44,000. Provide justification why the two amounts might not be equal.
9.Explain financial flexibility and what information it provides.
10.How are changes in foreign currency valuations reported on a statement of cash flows?
11.Explain the ways in which management can ‘window dress’ the statement of cash flows.
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