Classifying Items in the Statement of Cash Flows The following items are commonly reported in a statement of cash flows (indirect method presentation). For each item 1 through 20, determine (a) in which section the item is presented (operating, investing, or financing) and (b) whether the associated dollar amount is added or subtracted in the statement. (a) (b) 1. Payments of short-term debt. AnswerOperatingInvestingFinancing AnswerAddSubtract 2. Repurchases of common stock. AnswerOperatingInvestingFinancing AnswerAddSubtract 3. Purchases of property and equipment. AnswerOperatingInvestingFinancing AnswerAddSubtract 4. Sale of investments classified as long-term. AnswerOperatingInvestingFinancing AnswerAddSubtract 5. Proceeds from the issuance of common stock. AnswerOperatingInvestingFinancing AnswerAddSubtract 6. Increase in prepaid expenses and other current assets. AnswerOperatingInvestingFinancing AnswerAddSubtract 7. Acquisition for cash of a competitor. AnswerOperatingInvestingFinancing AnswerAddSubtract 8. Increase in current income tax payable. AnswerOperatingInvestingFinancing AnswerAddSubtract 9. Decrease in accounts payable. AnswerOperatingInvestingFinancing AnswerAddSubtract 10. Dividends paid to stockholders. AnswerOperatingInvestingFinancing AnswerAddSubtract 11. Depreciation and amortization. AnswerOperatingInvestingFinancing AnswerAddSubtract 12. Payment of current maturities of long-term debt. AnswerOperatingInvestingFinancing AnswerAddSubtract 13. Increase in income tax receivable. AnswerOperatingInvestingFinancing AnswerAddSubtract 14. Decrease in inventories. AnswerOperatingInvestingFinancing AnswerAddSubtract 15. Decrease in accounts receivable. AnswerOperatingInvestingFinancing AnswerAddSubtract 16. Decrease in deferred revenue. AnswerOperatingInvestingFinancing AnswerAddSubtract 17. Loss on disposal of fixed assets. AnswerOperatingInvestingFinancing AnswerAddSubtract 18. Increase in accrued salaries and payroll taxes. AnswerOperatingInvestingFinancing AnswerAddSubtract 19. Loss on impairment of assets. AnswerOperatingInvestingFinancing AnswerAddSubtract 20. Acquisition of intangibles assets. AnswerOperatingInvestingFinancing AnswerAddSubtra
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Classifying Items in the Statement of
The following items are commonly reported in a statement of cash flows (indirect method presentation). For each item 1 through 20, determine (a) in which section the item is presented (operating, investing, or financing) and (b) whether the associated dollar amount is added or subtracted in the statement.
| (a) | (b) | |
|---|---|---|
| 1. Payments of short-term debt. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 2. Repurchases of common stock. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 3. Purchases of property and equipment. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 4. Sale of investments classified as long-term. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 5. Proceeds from the issuance of common stock. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 6. Increase in prepaid expenses and other current assets. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 7. Acquisition for cash of a competitor. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 8. Increase in current income tax payable. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 9. Decrease in accounts payable. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 10. Dividends paid to stockholders. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 11. |
AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 12. Payment of current maturities of long-term debt. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 13. Increase in income tax receivable. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 14. Decrease in inventories. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 15. Decrease in |
AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 16. Decrease in deferred revenue. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 17. Loss on disposal of fixed assets. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 18. Increase in accrued salaries and payroll taxes. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 19. Loss on impairment of assets. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
| 20. Acquisition of intangibles assets. | AnswerOperatingInvestingFinancing | AnswerAddSubtract |
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