Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

13. Statement of Cash Flows

Introduction to the Statement of Cash Flows

Financial Accounting

13. Statement of Cash Flows

Introduction to the Statement of Cash Flows

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Multiple Choice

Gains on the sale of long-term assets for cash are:

Reported as a cash inflow in the financing activities section

Ignored in the statement of cash flows

Deducted from net income in the operating activities section

Added to net income in the investing activities section

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Verified step by step guidance

Understand the context: Gains on the sale of long-term assets occur when the selling price of the asset exceeds its book value. These gains are considered non-operating items and need to be adjusted in the statement of cash flows.

Identify the section of the statement of cash flows: The statement of cash flows is divided into three sections—operating activities, investing activities, and financing activities. Gains on the sale of long-term assets are related to operating activities because they affect net income.

Determine the adjustment process: In the operating activities section, the statement of cash flows starts with net income. Since gains on the sale of long-term assets are included in net income, they must be deducted to avoid double-counting the cash inflow from the sale.

Explain why gains are deducted: The cash inflow from the sale of the asset is reported separately in the investing activities section. Deducting the gain from net income ensures that the operating activities section reflects only the core business operations, not the effects of asset sales.

Clarify the treatment in other sections: The cash inflow from the sale of the asset is reported as a positive amount in the investing activities section, but the gain itself is not added to net income in this section. It is adjusted in the operating activities section as described.