Question

Your friend, Tracey, and you are having a discussion about the Statement of Cash Flows (SCF). You and her are discussing the various components of the SCF and the importance of each section. However, the discussion was focused a lot more on the “Noncash Investing and Financing Activities” section. You believe that this section is not that important. However, your friend, Tracey, believes that it is a very important section to present to potential investors and creditors.

Given what you have read and our discussions in class of Chapter 23 and your prior accounting classes, give a well-reasoned and detailed argument why you believe that your opinion is correct or your friend’s. Provide specific examples as to some items that would be presented in this section to validate yours or your friend’s opinion.

Requirement:

1. Post an original response, a detail one, to the question/opinion above. Once you post your response, you will be able to view your classmates’ responses.  (14 Points)

Answer 1

Statement of Cash Flows: This statement is clear a view over the generation of cash during the current financial year. It bifurcate the same into three activities to reveal the actual contribution in generation from all such activities.

However, the bottom of the cash Flow statement also holding the information in respect of Non Cash Investing and Financing activity, But same shall form part of the cash flow statement at the bottom line.

For Eg: Preference Stock issued for Building

Such expenses majorily takes places unde rlong term debt and Capital Formation only.

From above situation the investor will get to know the cash has come from preference Share holders for Building Construction.

It clearly evident the Debt portion currently having, reflect the future business prospects and other aspect taken in to account.

In the apparent case, the Tracey is right in focus on “Non Cash Investing and Financing” Item irrespective of the fact of the flow of cash in such transaction, but it play vital role in understanding the cash availability and cash crunch position of an entity.

Thus from above it can concluded that the Tracey is correct in understandability and its Financial reporting rules, Such Reporting eventually help the investors for making sound decision making.