 In this presentation we're going to take a look at multiple choice questions related to the statement of cash flows. First question, the statement of cash flows is not the best financial statement to use for which of the following. Support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical, reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. a. Assessing the ability of the company to generate profit b. Determining the source of cash received c. Determining the differences between net income and net operating cash flows d. Determining the source of cash used to finance investing activities and e. Determining the source of cash used for debt repayments Let's go through this again using the process of elimination. The statement of cash flows is not the best financial statement to use for which of the following a. Assessing the ability of the company to generate profit So I'm not quite sure on that. I mean it might help with that, but I'll keep that for now. b. Determining the source of cash received Now that's a flow kind of statement and I would think that that would be what the cash flow statement does because it's talking about cash flows. So I'm going to say that's probably there. c. Determining the difference between net income and net operating cash flows Now you know that might be there. I mean that sounds kind of like a method between the direct or indirect method type of terminology. So I'm going to keep that for now d. Determining the source of cash used to finance investing activities Now again we're talking about a flow thing there, cash flows. So I would think that that would be something that would be good use for the cash flow statement would tell us something about the cash flow there. And then e. Determining the source of cash used for debt repayments. And again we're talking about cash flows, the source of cash. So I would think that would be something in the cash flow statement. So we're left with a and c. And let's go through this again. The statement of cash flows is not the best financial statement to use for which of the following. a. Assessing the ability of the company to generate profit or c. Determining the differences between net income and net operating cash flows. So of the two I would think that c is less likely. So a is probably the answer here meaning a. Assessing the ability for the company to generate profit. If we want to think about the ability to generate profit we may think about cash flow but that's really the reason we're using an income statement is on an accrual basis is because that's a better determination of our ability to generate profit profit on an accrual basis measuring actual work as opposed to cash flow was the cash flows a bit different than profit profit is is not in other words a cash flow term necessarily it's it's a it's an accrual term and that's why the accrual method is used whereas so the income statement then would probably be better to assess that c says determining the difference between net income and net operating cash flows now the reason that you might bulk at that is it might be that sounds like the indirect method of the cash flow statement which is a cash flow statement as opposed to kind of a direct method which might not determine that as easily although it would still indicate it so c seems like that would be the place to go a cash flow statement for c as opposed to a so a looks like the correct answer final answer the statements of cash flows is not the best financial statement to use for which of the following a assessing the ability of the company to generate profit next question the payment of wages is classified as a financing activities b investing activities c operating activities d direct activities or e indirect activities let's go through this again using the process of elimination the payment for wages is classified as either a financing well first week we can go through these and say okay once again the three components of the statement of cash flows is going to be financing investing or operating so you would think that they're trying to ask what's going to be included in one of those three and the direct and indirect activities seem like kind of filler items here again just to have up through e five answers so i don't think it's going to be d or e i think we're going to probably need to be decided between financing investing and operating then i would think about the journal entry if we paid wages what would be the journal entry well we would have wages expense if this is the most simplified journal entry for paying wages and then we would have cash if i mean if we if we narrow this down to the most simple payroll journal entry we can think of and we would have this and and this is going to be an expense this is an income statement account expense and therefore you would think that this would be an operating activity because the operating activities are really looking for cash flows from operations similar to like the income statement so that's how i would go about this and go say that c would be the looking like the correct answer so final answer the payment of wages is classified as c operating activities next question the receiving of cash for a loan is classified as either a financing activity b investing activity c operating activities d direct activities and e indirect activities again we're classifying the cash flow statement so it looks like we're thinking about operating investing or financing we can probably eliminate d and e and then i would write down the journal entry related to this so receiving cash for a loan what would happen we'd get cash would be the debit hundred dollars probably let's make it a thousand because it's a loan we're getting thousand dollars and then we're gonna have a loan payable loan payable thousand dollars so the question then is are any of these accounts income statement account revenue or expense no you know it's an asset no liability so it's probably not going to be the operating activities next question did we invest in anything did we buy anything of substantial value here no we got money and we owe a liability so it's not investing here we're what we're doing of course is financing we're getting money for the company and we're we're promising to pay it back we're trying to find we're trying to generate capital for the company so final answer a final answer the receiving of cash for a loan is classified as a financing activity