Question

1.)Who is responsible for the fair presentation of the financial statements and the integrity of the system of internal controls?

                  A. The independent registered accounting firm

                  B. The CEO and CFO

                  C. Management of the company

                  D. The Board of Directors

2.)Which of the following is NOT included in the cash flow profile?

                  A. Cash received from customers

                  B. Cash paid for inventory purchases

                  C. Free cash flows

                  D. cash used to pay dividends

3.) Which of the following is a “squeeze” in the cash flow profile

                  A. other cash flows

                  B. cash margin

                  C. other operating cash flows

                  D. other investing cash flows

4.) Which of the following is generally prepared using the indirect method:

                  A. financing activities section of the statement of cash flows

                  B. the investing section of the statement of cash flows

                  C. the operating section of the statement of cash flows

                  D. the non-operating section of the statement of comprehensive income

Answer 1

1) Option (C) is correct.

Management is responsible for fair presentation of the financial statements and the integrity of the system of internal controls. Financial statements are Management's responsibility. Independent registered accounting firm or auditor's responsibility is to express an opinion on the financial statements. CEO,CFO and the Board of Directors just hire the Management but whether the fair presentation of financial statements in conformity with generally accepted accounting principles is an integral part of management's responsibility.

2)  Option (C) is correct.

Free cash flow is the cash left after a company pays for its operating expenses and capital expenditures. It is not included in the cash flow profile. Cash received from customers, cash paid for inventory purchases and cash used to pay dividends result in the increase or decrease of cash and are cash flow profiles.

3)  Option (B) is correct.

Cash margin is the squeeze in cash flow profile.

4)  Option (C) is correct.

The operating section of the statement of cash flows is generally prepared using the indirect method. It can be prepared by using both, direct and indirect methods. Under indirect method, the starting point is net income, then all the non operating and non cash charges are added back to it and all non operating and non cash incomes are deducted from it to arrive at the cash flows from operating activities.