If the Calculation of Net Cash Flows from Operating Activities

question 39

Multiple Choice

If the calculation of net cash flows from operating activities starts with net income, the company:

• A) is using the net income method.
• B) will remove the effects of all noncash items included in the calculation of net income.
• C) is using the direct method.
• D) will add all noncash items not included in the calculation of net income.

Understand the adjustments needed for reconciling the book and bank statements.

Comprehend the treatment of bank service charges and interest earned in reconciliations.

Recognize the implications of unrecorded deposits in transit on financial statements.

Interpret the journal entries required for bank reconciliation adjustments.

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Definitions:

Fixed Rate

Fixed rate refers to an interest rate that remains constant over the duration of a loan or deposit, not subject to change with market fluctuations.

Swap Contract

An agreement between two parties to exchange sequences of cash flows for a set period of time according to predetermined terms.

Forward Contract

An agreement customized for two individuals to either buy or sell a particular asset at a price decided upon for a future date.

Hedging

A strategy used to reduce or eliminate the risk of adverse price movements in an asset, often by taking an offsetting position in a related security.