Multiple Choice
In the context of the statement of cash flows, which group is primarily responsible for establishing the standards that govern how cash flow information is reported by companies?
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13. Statement of Cash Flows
Introduction to the Statement of Cash Flows
Multiple Choice
Which of the following would result in a cash inflow from investing activities on the statement of cash flows?
A
Issuance of common stock
B
Sale of equipment for cash
C
Purchase of inventory
D
Payment of dividends
Verified step by step guidance1
Understand the classification of cash flows: The statement of cash flows is divided into three sections—operating activities, investing activities, and financing activities. Investing activities typically involve transactions related to the acquisition or disposal of long-term assets.
Identify the nature of each option: Analyze each option to determine whether it relates to investing activities. For example, the sale of equipment for cash involves the disposal of a long-term asset, which is classified under investing activities.
Exclude non-investing activities: Issuance of common stock is a financing activity, purchase of inventory is an operating activity, and payment of dividends is also a financing activity. These do not fall under investing activities.
Focus on the correct option: The sale of equipment for cash is a cash inflow because it generates cash from the disposal of a long-term asset, which is directly related to investing activities.
Conclude the classification: Confirm that the sale of equipment for cash is the only option that results in a cash inflow from investing activities on the statement of cash flows.
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