Chapter 23: Q5CA (page 1393)
Question: CA23-5 (Purpose and Elements of SCF) GAAP requires the statement of cash flows be presented when financial statements are prepared.
Instructions
(a) Explain the purposes of the statement of cash flows.
(b) List and describe the three categories of activities that must be reported in the statement of cash flows.
(c) Identify and describe the two methods that are allowed for reporting cash flows from operations.
(d) Describe the financial statement presentation of noncash investing and financing transactions. Include in your description an example of a noncash investing and financing transaction.
Short Answer
Answer
- Cash flow statement is prepared to provideinformation to the investors and the creditors.
- Cash flow statement has three sections: investing,operating, andfinancing.
- There aretwo methods to prepare a cash flow statement: direct and indirect.
- Non-cash investing and financing transactions are reported by preparing a separate schedule at the bottom of the cash flow statement.