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CFIN4
Chapter 2 – Analysis of Financial Statements
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1. The income statement measures the flow of funds into (i.e. revenue) and out of (i.e. expenses) the firm over a
certain time period. It is always based on accounting data.
a. True
b. False
ANSWER:
True
DIFFICULTY: Easy
TOPICS:
Income statement
2. The balance sheet is a financial statement measuring the flow of funds into and out of various accounts over time
while the income statement measures the progress of the firm at a point in time.
a. True
b. False
ANSWER:
False
DIFFICULTY: Easy
TOPICS:
Financial statements
3. An increase in an asset account is a source of cash, whereas an increase in a liability account is a use of cash.
a. True
b. False
ANSWER:
False
DIFFICULTY: Easy
TOPICS:
Sources and uses of cash
4. Depreciation, as shown on the income statement, is regarded as a use of cash because it is an expense.
a. True
b. False
ANSWER:
False
DIFFICULTY: Easy
TOPICS:
Sources and uses of cash
Page 2
CFIN4
Chapter 2 – Analysis of Financial Statements
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
5. When a firm pays off a loan using cash, the source of funds is the decrease in the asset account, cash, while the use
of funds involves a decrease in a liability account, debt.
a. True
b. False
ANSWER:
True
DIFFICULTY: Easy
TOPICS:
Sources and uses
6. Non-cash assets are expected to produce cash over time but the amount of cash they eventually produce could be
higher or lower than the values at which the assets are carried on the books.
a. True
b. False
ANSWER:
True
DIFFICULTY: Easy
TOPICS:
Non-cash assets
7. Taxes, payment patterns, and reporting considerations, as well as credit sales and no