9. A company’s accounts receivable decreased from the beginning to the end of th
ID: 2596718 • Letter: 9
Question
9. A company’s accounts receivable decreased from the beginning to the end of the year. In the company’s statement of cash flows (operating activities shown using direct approach), the cash collected from customers would be
A: Sales revenues plus accounts receivable at the beginning of the year.
B: Sales revenues plus the decrease in accounts receivable from the beginning to the end of the year.
C: Sales revenues less the decrease in accounts receivable from the beginning to the end of the year.
D: The same as sales revenues.
10. A loss on the sale of machinery in the ordinary course of business should be presented in a statement of cash flows (using indirect approach for operating activities) as a(n)
A: Deduction from net income.
B: Addition to net income.
C: Inflow and outflow of cash.
D: Outflow of cash.
11. In a statement of cash flows (using indirect approach for operating activities) an increase in inventories should be presented as a(n)
A: Outflow of cash.
B: Inflow and outflow of cash.
C: Addition to net income.
D: Deduction from net income.
12. Bay Manufacturing Co. purchased a 3-month US Treasury bill. In preparing Bay’s statement of cash flows, this purchase would
A: Have no effect.
B: Be treated as an outflow from financing activities.
C: Be treated as an outflow from investing activities.
D: Be treated as an outflow from lending activities.
Explanation / Answer
9. The cash collected from customers would be B: Sales revenue plus the decrease in accounts receivables from the beginning to the end of the year. Apart from cash received from sales of this year , cash has also been received from the sales made on account in past year in the form of accounts receivables received. So both should be recorded.
10. A loss on the sale of machinery in the ordinary course of business should be recorded as B. addition to net income as such loss is a non cash item and does not have any effect on inflow or outflow of cash. So it shaould be added back to net income to reconcile it to net cash provided by operating activities.
11. In a statement of cash flows using indirect approach for operating activities, an increase in inventories should be presented as D: deduction from net income as any increase in current assets is deducted from net income to incorporate the effect of working capital changes while calculating cash generated by operating activities.
12. Purchasing of a 3 - month US Treasury bill will have A: no effect. Purchase of a treasury bill does not result in inflow or outfow of cash. It is rather treated as a cash equivalent as it can be readily converted into cash.
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