Which of the following statements is correct? a) In the statement of cash flows, depreciation...

Question:

Which of the following statements is correct?

a) In the statement of cash flows, depreciation charges are reported as a use of cash.

b) In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash.

c) In the statement of cash flows, a decrease in inventories is reported as a source of cash.

d) In the statement of cash flows, a decrease in accounts payable is reported as a source of cash.

e) Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity.

Statement of Cash Flows:

There are three main financial statements: balance sheet, income statement, and cash flow statement. The cash flow statement provides investors with an overview of the sources and uses of cash. It is divided into three sections: cash flow from operations, cash flows from investments, and cash flows from financing.

Answer and Explanation:

Correct statement:

c) In the statement of cash flows, a decrease in inventories is reported as a source of cash.

A decrease in inventories represents an inflow of cash.

Incorrect statements:

a) In the statement of cash flows, depreciation charges are reported as a use of cash.

False, depreciation is added back to net income.

b) In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash.

False, a decrease in accounts receivable is a source of cash.

d) In the statement of cash flows, a decrease in accounts payable is reported as a source of cash.

False, when you pay your bills you have to use cash, you don't receive cash.

e) Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity.

False, dividends are shown in the cash flow statement under the financing activities section.


Learn more about this topic:

Loading...
Using the Statement of Cash Flows for Decision Making

from Accounting 101: Financial Accounting

Chapter 12 / Lesson 5
8.2K

Related to this Question

Explore our homework questions and answers library