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Identify whether each of the following would be reported as an operating, investing, or financing activity on the statement of cash flows: a. Purchase of investments b. Purchase of equipment c. Payment for selling expenses d. Collection of accounts receivable e. Cash received from customers f. Issuance of bonds payable

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 16, Problem 1PEB
Textbook Problem
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Identify whether each of the following would be reported as an operating, investing, or financing activity on the statement of cash flows:

  1.        a.            Purchase of investments
  2.       b.            Purchase of equipment
  3.        c.            Payment for selling expenses
  4.       d.            Collection of accounts receivable
  5.        e.            Cash received from customers
  6.         f.            Issuance of bonds payable

To determine

Identify whether each of the given items as operating, investing, or financing activities in the statement of cash flow.

Explanation of Solution

Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.

Type of activities reported in statement of cash flows:

Cash flows from operating activities: In this direct method, cash flow from operating activities is computed by using all cash receipts and cash payments during the year.

The below table shows the way of calculation of cash flows from operating activities:

Cash flows from operating activities (Direct method)
 
Add: Cash receipts.
         Cash receipt from customer
 
Less: Cash payments:
To supplier
For operating expenses
Income tax expenses
Net cash provided from or used by operating activities

Table (1)

Cash flows from investing activities: Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.

The below table shows the way of calculation of cash flows from investing activities:

Cash flows from investing activities
 
Add: Proceeds from sale of fixed assets
         Sale of marketable securities / investments
         Interest received
         Dividend received
 
Deduct: Purchase of fixed assets/long-lived assets
              Purchase of marketable securities
Net cash provided from or used by investing activities

Table (2)

Cash flows from financing activities: Cash provided by or used in financing activities is a section of statement of cash flows...

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Chapter 16 Solutions

Financial Accounting
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