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. COMING SOON!

Problems
Goals Achievement
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Multiple Choice
Objectives
Key Terms

Fill in the Blanks: Chapter Sixteen

1. measure the ability of a business to meet current debts and obligations as they come due.

2. One of the most widely used liquidity measures is the which compares current assets and current liabilities.

3. Activity ratios are often termed .

4. Insight into the amount of protection that is afforded the long-term creditors is provided by a ratio called .

5. The annual cash dividend per share divided by the current market price of stock is the .

6. are those which arise from transactions and events that enter into net income.

7. are those that involve investment of an entity's resources.

8. are those that supply a firm with funds from either the firm's owners or creditors.

9. Under both the direct and indirect approaches to preparing a statement of cash flows, a separate schedule of investing/financing transactions should be presented.

10. Under the , individual items on the income statement are translated from the accrual basis to the cash basis.

11. Under the , operating cash flows are calculated by starting with accrual basis net income, then adding and subtracting amounts to convert to the cash basis.

12. If the indirect method is used, noncash expenses like depreciation should be in calculating the cash provided by operating activities.

13. The purchase of land, disposal of equipment, and so forth are activities.

14. The payment of dividends and receipt of proceeds from bond issues are examples of activities.

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