Multiple Choice
When evaluating cost-cutting proposals, how are operating cash flows typically affected under the indirect method of the statement of cash flows?
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13. Statement of Cash Flows
Operating Activities: Indirect Method
Multiple Choice
In the statement of cash flows prepared using the indirect method, the section for reporting the purchase of equipment for cash is:
A
Investing activities
B
Supplemental disclosures
C
Financing activities
D
Operating activities
Verified step by step guidance1
Understand the structure of the statement of cash flows, which is divided into three main sections: Operating activities, Investing activities, and Financing activities.
Recognize that the indirect method starts with net income and adjusts for non-cash transactions and changes in working capital in the Operating activities section.
Identify that cash flows related to the purchase or sale of long-term assets, such as equipment, are categorized under Investing activities.
Note that the purchase of equipment for cash represents an outflow of cash and is reported in the Investing activities section.
Supplemental disclosures are used to provide additional information about non-cash transactions or other relevant details, but they are not part of the main sections of the cash flow statement.
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