Question

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)

iii. Depreciation (1 mark)

iv. Loss on sale of property (1 mark)

v. Impairment (1 mark)

Answer 1

a. Five items that can be found in the operating activities of the cash flow statement (indirect method)

i. Depreciation and amortization expense

ii. Gain or loss on sale of assets

iii. Increase or decrease in Accounts Receivable

iv. Increase or decrease in Inventory

v. Increase or decrease in Accounts payable

In Direct method below 5 items can be found

i. Cash received from customers

ii. Cash paid to suppliers

iii. Cash paid to employees

iv. Cash paid for operating expenses

v. Cash paid for interest

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

i. Sale of fixed assets

ii. Purchase of fixed assets

iii. Sale of investments

iv. Purchase of investments

v. Purchase of marketable securities

c. five items that can be found in the financing activities of the cash flow statement (indirect method)

i. Borrowing through bonds

ii. Repayment of long term note payable

iii. Issue of Common shares

iv. Payment of Cash dividend

v. Purchase of treasury stocks

d. i) Interest – Cash paid for interest is shown as cash outflow after adjustment for discount or premium on bonds and interest payable on bonds

ii) Tax – Cash paid for tax is shown as cash outflow after adjustment for income tax payable and deferred taxes

iii) Depreciation – Depreciation is reduced from operating expenses (if included) since it is non cash expenses. Else depreciation can be ignored (if not part of operating expenses)

iv) Loss on sale of property – no adjustment needed in direct method of preparation for cash flow from operating activities

v) Impairment – no adjustment needed in direct method of preparation for cash flow from operating activities.