Principles of Accounting: Chapter Sixteen

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Chapter 16 opens with a review of the various ratios that have been introduced throughout the book. The ratios are categorized according to those which evaluate liquidity, debt, turnover, profitability, and other indicators. A summary table includes the formulations, and shows appropriate calculations taken from a comprehensive financial statement illustration.

The next section of the chapter introduces a deeper coverage of the statement of cash flows. This required financial statement might be prepared under a direct or indirect approach. Both methods are illustrated. The direct method can involve complex calculations of certain cash receipts or payments, and the general formulations for these calculations are clearly shown.

The chapter closes by demonstrating a worksheet that can facilitate the preparation of a statement of cash flows. The essential nature of the worksheet is that it builds a bridge between a beginning-of-period and end-of-period balance sheet, explaining how changes are reconcilable to their corresponding cash effects.

Exercises

To aid in your understanding of this chapter, exercises with solutions are available for free download at Bookboon.com. You will find these exercises very helpful in providing models and guidelines for solving all of the problems at principlesofaccounting.com.

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Problems
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Multiple Choice
Objectives
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Problems: Chapter Sixteen

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Basic		Problem	Worksheet	Combined	Objective

	B-16.01				Liquidity analysis

	B-16.02				Debt service ratios

	B-16.02				Debt service ratios (data set)

	B-16.03				Analysis of receivables and inventory turnover

	B-16.04				Profitability ratios and analysis

	B-16.05				Demonstrating understanding of P/E, book value, and yields

	B-16.06				Classification of cash flows

	B-16.07				Direct calculation of operating cash flows

	B-16.08				Indirect calculation of operating cash flows

	B-16.09				Rearranging cash flows in good form - direct approach

	B-16.10				Rearranging cash flows in good form - indirect approach

	B-16.11				Knowledge of cash flow statement components

	B-16.12				Company cash flow evaluation

	B-16.13				Preparation of statement of cash flows (direct)

	B-16.14				Preparation of statement of cash flows (indirect)



Involved		Problem	Worksheet	Combined	Objective

	I-16.01				Ratios from comprehensive financial statements

	I-16.02				Preparation of statement of cash flows (direct)

	I-16.03				Preparation of statement of cash flows (indirect)

	I-16.04				Worksheet for a statement of cash flows

	I-16.05				Team-based approach to evaluation of cash flows

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