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

Operating Activities: Indirect Method

Financial Accounting

13. Statement of Cash Flows

Operating Activities: Indirect Method

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Multiple Choice

Which of the following items is classified as an operating activity on the statement of cash flows when using the indirect method?

Issuance of common stock

Depreciation expense

Purchase of equipment

Payment of dividends

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Verified step by step guidance

Understand the classification of cash flow activities: The statement of cash flows is divided into three sections—operating, investing, and financing activities. Operating activities involve transactions related to the core operations of the business, such as revenues and expenses.

Learn the indirect method for operating activities: The indirect method starts with net income and adjusts for non-cash items and changes in working capital to calculate cash flows from operating activities.

Identify depreciation expense as a non-cash item: Depreciation expense is a non-cash charge that reduces net income but does not involve an actual cash outflow. Under the indirect method, it is added back to net income to adjust for its non-cash nature.

Differentiate other items in the problem: Issuance of common stock is a financing activity, purchase of equipment is an investing activity, and payment of dividends is a financing activity. These are not classified as operating activities.

Conclude that depreciation expense is classified as an operating activity under the indirect method because it adjusts net income for non-cash charges related to the use of long-term assets.