Chapter 1, Problem 19E

To determine

Statement of Cash Flows:

This statement records the activities related to inflows and outflows of cash and funds which take place in the company for a particular accounting period.

It has following three parts:

• Cash flow from operating activities
• Cash flow from investing activities
• Cash flow from financing activities

Cash Flow from Operating Activities:

The inflow and outflow of cash related to the operating nature is basically comes under operating activity. The cash flow from operating activities can be computed by some adjustment in the amount of net income.

There are two method of calculating cash flow from operating activity:

• One is the direct method, in this add revenue obtained and subtract the expenses.
• The other method of calculating cash flows from operating activity is an indirect method in this add non cash item to get correct cash flows.

Cash Flow from Investing Activities:

In this activity of cash flows, sale and purchase of investment/fixed assets, or any income related to the investment will be recorded.

For example a fixed asset acquire from the company that will reduce the cash flow and a sale of investment that will increase the cash flow from investing activity.

Cash Flow from Financing Activities:

This includes the cash flows related to financial transactions. The issue of shares will increase the cash flow from financing activity as it involves the increase in cash. The payment to the debenture holder involves cash outflow and the cash balance will reduces.

To identify: The type of cash flow activity.