In Preparing a Statement of Cash Flows, Cash Flows from Operating

question 31

Multiple Choice

In preparing a statement of cash flows, cash flows from operating activities

• A) are always equal to accrual accounting income.
• B) are calculated as the difference between revenues and expenses.
• C) can be calculated by appropriately adding to or deducting from net income those items in the income statement that do not affect cash.
• D) can be calculated by appropriately adding to or deducting from net income those items in the income statement that do affect cash.

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Definitions:

Cash Equivalents

Short-term, highly liquid investments that are easily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Quick Ratio

A measure of a company's ability to meet its short-term obligations using its most liquid assets.

Accounts Receivable

Accounts receivable represents the money owed to a company by its customers for goods or services that have been delivered but not yet paid for, essentially an extension of credit from the company to the customer.

Accounts Payable

The amount of money owed by a company to its suppliers or creditors for goods and services purchased on credit.