Textbook Problem

Classification of Cash Flows

The following are several items that might be disclosed on a company’s statement of cash flows presented using the indirect method.

a. Net income

b. Depreciation expense

c. Issuance of common stock

d. Loss on disposal of equipment

e. Purchase of a building

f. Decrease in accounts payable

g. Converted bonds into common stock

h. Sale of long-term investment

i. Payment of interest

j. Increase in inventory

Required:

1. Indicate whether each item should be classified as a cash flow from operating activities, cash flow from investing activities, cash flow from financing activities, or noncash investing and financing activity.

2. CONCEPTUAL CONNECTION Why is the proper classification of cash flows important?