Which of the following best describes a statement of cash flows?
Answer(s): A
Under accrual accounting, net income does not typically equal net cash flow. While net income is important to identify, accrued income does not pay wages, payables, or dividends. Cash flows are important to identify since it is cash that repays loans, etc.
Which of the following is NOT an operating efficiency ratio?
Answer(s): D
Operating efficiency ratios are a measure of how well the firm is utilizing its assets and capital. This utilization has a direct yardstick in terms of total sales generated. Hence, operating efficiency ratios express total sales as a fraction of assets or equity. On the other hand, Operating profit margin belongs to the group of operating profitability ratios.
Which of the following is/are TRUE?
In cash accounting, net income equals net operating cash inflow (total operating cash inflow - total operating cash outflow) and is the same as earnings.
An end-of-period adjustment for depreciation of fixed assets is necessary
Answer(s): C
An adjustment for depreciation expense matches expenses with revenues for the period , thus contributing to correct statement of net income for the period.
Under the Percentage-of-completion method of recognizing contract revenue, common methods of estimation of completion include all of the following except:
This method attempts to match expenses with revenues and profits. Revenues recognized would not be based on the expected profits for the company during the year.
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