You are on a team responsible for addressing cash flow problems with other managers in your corporate division. Your accounting department has provided your team with the statement of cash flows prepared using the indirect method. At your first meeting, some of the managers have expressed concerns about the statement’s understandability and do not view the statement as anything other than a “rearranged income statement”. The managers have requested that your team explain to them how the statement is constructed.

Required:

Answer the following questions posed by the managers relating to the investing and financing sections of the statement of cash flows.

a. What types of items are reported in the investing section of the statement of cash flows?

b. What about the book value of an asset? How is it shown on the statement of cash flows?

c. What types of items are reported in the financing section of the statement of cash flows?

d. What about interest received and dividends received. Why are these items not shown in the investing section of the statement of cash flows?

Question

You are on a team responsible for addressing cash flow problems with other managers in your corporate division. Your accounting department has provided your team with the statement of cash flows prepared using the indirect method. At your first meeting, some of the managers have expressed concerns about the statement’s understandability and do not view the statement as anything other than a “rearranged income statement”. The managers have requested that your team explain to them how the statement is constructed.

Required:

Answer the following questions posed by the managers relating to the investing and financing sections of the statement of cash flows.

a.	What types of items are reported in the investing section of the statement of cash flows?

b.	What about the book value of an asset? How is it shown on the statement of cash flows?

c.	What types of items are reported in the financing section of the statement of cash flows?

d.	What about interest received and dividends received. Why are these items not shown in the investing section of the statement of cash flows?

Quizplus · Accepted Answer

The Answer of You are on a team responsible for addressing cash flow problems with other managers in your corporate division. Your accounting department has provided your team with the statement of cash flows prepared using the indirect method. At your first meeting, some of the managers have expressed concerns about the statement’s understandability and do not view the statement as anything other than a “rearranged income statement”. The managers have requested that your team explain to them how the statement is constructed.