Classification of Cash Flows

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Cash FLows – Part 1 - Exercises

Classification of Cash Flows

For each event listed below, select the appropriate category which describes the effect of the event on a statement of cash flows:
a.Cash provided/used by operating activities.
b.Cash provided/used by investing activities.
c.Cash provided/used by financing activities.
d.Not a cash flow.
1.Payment on long-term debt (company pays INTEREST only) – think about this how this could be both – related to debt because financing and operating because it’s part of operations
2.Issuance of bonds at a premium

A3.Collection of accounts receivable

D4.Cash dividends declared – it’s not a cash flow

5.Issuance of shares to acquire land (“exchange” of shares for land) – no cash exchanges here

B6.Sale of marketable securities (long-term) -

A7.Payment of employees' wages

C8.Issuance of common shares for cash

A/?9.Payment of income taxes payable – could be disposition of property, etc. then this will fall under investing

B10.Purchase of equipment

B11.Purchase of common shares in another company

B12.Sale of real estate held as a long-term investment


Transaction| Journal Entry| Impact on earnings | Impact on cash flows| Cash flow classification| Adjustment? | Issue 1,000 shares for $10,000| Dr. cash (BS) 10K Cr. Common shares 10K| No| INFLOW of 10k| Financing| No reconciliation required; item included in CFF| Purchase inventories for $2,000 on account (i.e. not for cash)| Dr. inventory (BS)CR. Accounts payable (BS)| No| No impact| Operating (no CASH FLOW)| Earnings $0CFO $0| Pay off $2,000 for inventories purchased above| Dr. AP (BS) 2kCr. Cash (BS) 2k| No| OUTFLOW of 2k| Operating| Earnings $0“Adjustment “Change in non-cash working capital $-2kCFO $-2k| Sell $1,000 worth...
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