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Business Accounting Financial Accounting

The cash flow statement evaluates the company's ability to create and use cash. This statement is used by business organizations to evaluate a company's liquidity and solvency. The cash flow statement includes the cash inflows and cash outflow from financing, investing, and operating activities. To state: The option that is not included in a cash flow statement. A transfer of cash to a cash-equivalent investment. Explanation for correct answer: While preparing the cash flow statement, the net cash flows from the operating activities, investing activities and financing activities are required to be added to the beginning cash balance, to determine the ending cash balance. The cash flow statement doesn’t disclose the transfer of cash to a cash-equivalent investment. Therefore, it is the correct answer. Explanation for incorrect answer: B. The amount of cash at year-end is determined by adding the beginning balance of cash to the net cash flows from the operating activities, investing activities, and financing activities. So the amount of cash at year-end is disclosed in a statement of cash flows. Since the amount of cash at year-end is disclosed in a statement of cash flows, hence, it is an incorrect option. C. Cash outflows from the investing activities during the period such as the purchase of machinery, equipment, etc. are disclosed under the head of cash flows from investing activities. Since cash outflow from investing activity is disclosed in the statement of cash flows, hence, it is an incorrect option. D. Cash inflows from financing activities during the period such as the issue of common stock, raising long-term loans, etc., are disclosed under the head of cash flows from financing activities. Since cash inflow from financing activity is disclosed in the statement of cash flows, hence, it is an incorrect option.

The cash flow statement evaluates the company's ability to create and use cash. This statement is used by business organizations to evaluate a company's liquidity and solvency. The cash flow statement includes the cash inflows and cash outflow from financing, investing, and operating activities. To state: The option that is not included in a cash flow statement. A transfer of cash to a cash-equivalent investment. Explanation for correct answer: While preparing the cash flow statement, the net cash flows from the operating activities, investing activities and financing activities are required to be added to the beginning cash balance, to determine the ending cash balance. The cash flow statement doesn’t disclose the transfer of cash to a cash-equivalent investment. Therefore, it is the correct answer. Explanation for incorrect answer: B. The amount of cash at year-end is determined by adding the beginning balance of cash to the net cash flows from the operating activities, investing activities, and financing activities. So the amount of cash at year-end is disclosed in a statement of cash flows. Since the amount of cash at year-end is disclosed in a statement of cash flows, hence, it is an incorrect option. C. Cash outflows from the investing activities during the period such as the purchase of machinery, equipment, etc. are disclosed under the head of cash flows from investing activities. Since cash outflow from investing activity is disclosed in the statement of cash flows, hence, it is an incorrect option. D. Cash inflows from financing activities during the period such as the issue of common stock, raising long-term loans, etc., are disclosed under the head of cash flows from financing activities. Since cash inflow from financing activity is disclosed in the statement of cash flows, hence, it is an incorrect option.

Solution Summary: The author explains that the cash flow statement evaluates the company's ability to create and use cash.

Financial Accounting

Financial Accounting

5th Edition

ISBN: 9781618531650

Author: Thomas Dyckman

Publisher: Cambridge Business Publishers

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