Quiz 12: Statement Cash Flows

Business

The required cash flow statement is given below: img The calculation net increase/decrease in cash and cash equivalents is shown below: img

The effects of the transactions are stated below: img Explanations : 1. Purchasing new equipment in exchange of promissory note does not involve any cash flow. It will not have any effect on the cash flow statement. 2. Taxes and statutory dues are the nominal expenses for operating a business. The payment of the same will result in a cash outflow under operating section. 3. Stock is issued to procure finance for the business. Thus, it is to be considered as a financing activity. It is an inflow of cash under financing activities. 4. Prepaid rent is a current asset that would be adjusted in the operating activity section. It is a cash outflow under operating activities. 5. Mere recording of adjusting entry does not have any cash effect. It would not be reflected in the cash flow statement. 6. Purchase of equipment would be considered as an investing activity. It is an outflow of cash under investing activities. 7. Long term debt is a source of finance that helps the company to procure cash as per its needs. It is an inflow of cash under financing activities. 8. Collecting cash from the customers would increase the cash balance. It is an inflow of cash under operating activities. 9. Salaries are nominal operating expenses for the operations of the business. It is an outflow of cash under operating activities.

The answer to the match the following are as stated: img Explanation: 1. Procuring long-term debt means the company is involved in financing activity leading to cash inflow. Thus, any addition to the same will be reflected in financing activities section. 2. Depreciation is a non-cash transaction which is added back to the net income while calculating cash from operating activities. Thus, is disclosed in the operating activities section. 3. Purchase of non-current assets is considered to be investment for the business. Thus, it is disclosed in the investing activities section of the cash flow statement. 4. Notes payable is a form of debt. Thus, issuance or repayment of notes payable will result in cash flow from financing activity. 5. Any change in current assets has to be reflected in the operating activities section of the cash flow statement. 6. Purchase or sale of any non-current asset is considered to be an investment activity. Thus, forms a part of investing activities section of the cash flow statement. 7. Long-term debt is a method to raise funds by paying an interest on the amount borrowed, reduction in the same states that the borrowed amount is repaid resulting in cash outflow which is reflected in financing activity. 8. Companies issue stock for cash to finance their business activities. Thus, issue of stock for cash is disclosed in the financing activities section of the cash flow statement. 9. Inventory is a current asset and any increase or decrease in current assets has to be adjusted in the operating activities section of the cash flow statement. 10. Net income is taken after making necessary adjustments to form the part of the cash flow from operations.

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