Question

QUESTION 2

a. Name five items that can be found in the operating activities of the cash flow statement.

b. Name five items that can be found in the investing activities of the cash flow statement.

c. Name five items that can be found in the financing activities of the cash flow statement.

d. Show how the following is treated when reconciling the net income to the cash from operating activities when a company uses the direct method to prepare the cash flow statement.

i. Interest (1 mark)

ii. Tax (1 mark) i

ii. Depreciation (1 mark)

iv. Loss on sale of property (1 mark)

v. Impairment (1 mark)

Answer 1

a)Cash flow from operating activity :Cash inflow or outflow from regular operations of business for a given accounting period.Items found in operating activities of cash flow statement :

1)Cash collection from customers

2)Payment to suppliers

3)Payment for selling and administrative expense /operating expenses

4)payment of income taxes

5)Payment of salaries expense

b)Cash flow from investing activity :Cash inflow or outflow from purchase or sale of non current assets and income thereon. Items found in investing activities of cash flow statement :

1)sale of long term investment

2)Purchase of property ,plant and equipment

3)Rental income from lent of plant and equipment /Dividend received on long term investment

4)sale of property ,plant and equipment

5)purchase of long term investment

c)Cash flow from Financing activity:cash inflow or outflow from long term financial needs or requirement of organization .Items found in investing activities of cash flow statement

1)Issue of common stock

2)Repayment of long term debt

3)dividend paid

4)Purchase of treasury stock

5)issue of long term note payable

d)The direct method of cash flow considers only those items that result in cash inflow or outflow from operating activities and thus does not considers non cash transactions.

i)Interest	Subtracted while calculating cash flow
ii)Taxes	Subtracted while calculating cash flow
iii)Depreciation	Not considered while calculating cash flow from operating activity using direct method as it is a non cash expense
iv) Loss on sale of property	Not considered while calculating cash flow from operating activity using direct method as it is a part of investing activity
v)Impairment	Not considered while calculating cash flow from operating activity using direct method as it is a non cash expense