Question

Identify the section of the statement of cash flows where each of the following items would be reported.

Schedule of noncash financing and investing Operating activities Financing activities

Decrease in inventory

Increase in accounts receivable

Loss on sale of equipment

Exchange of land for note payable

Payment of dividends to stockholders

Answer 1

Solution:

Decrease in Inventory : Operating Activities

Increase in accounts receivable : Operating Activities

Loss on sale of Equipment : Operating activities

Exchange of land for note payable : Schedule of non-cash financing and investing

Payment of dividends to stockholders : Financing activities

Explanation:

Under Indirect method of cashflow statement , non-cash expenses are added back to net income in the operating activities section. Also changes in current assets and liabilities is adjusted with net income to arrive at cash flow from operating activities.

Hence items like decrease in Inventory and increase in accounts receivable are classified under operating activities.Loss on sale of equipment is a non-cash expense and hence will come in operating activities.( Entire sale proceeds will come in investing activities).

Exchange of land for note payable is a non- cash Item as it doesn't involve any outflow of cash therefore comes under Schedule of non-cash financing and investing

While payment of dividends to stockholders comes under financing activities because we have financed our operations through money raised from stockholders so money paid to them in the form of dividends is a financing activity.